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Operator: Good day, and thank you for standing by. Welcome to the first quarter 2026 Employers Holdings, Inc. earnings conference call. There will be a question-and-answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Senior Vice President, Treasury Investments. Please go ahead. Matthew: Thank you, operator. Today's call is being recorded and webcast from the Investors section of our website, where a replay will be available following the call. Statements made during this conference call that are not based on historical facts are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause the actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission. All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments. The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligations under the SEC's Regulation FD. Such disclosures will be included in the Investors section of our website. Accordingly, investors should monitor that portion of our website in addition to following our press releases, SEC filings, public conference calls, and webcasts. In our earnings press release and in our remarks or responses to questions, you may use non-GAAP financial measures. Reconciliations of these non-GAAP measures to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation, and any other materials available in the Investors section on our website. I will now turn the call over to Katherine Holt Antonello, our Chief Executive Officer. Katherine Holt Antonello: Thank you, Matthew. Good morning, everyone, and welcome to our first quarter 2026 earnings call. Joining me today is Michael Aldo Pedraja, our Chief Financial Officer. I will begin by providing highlights of our first quarter 2026 financial results and then hand it over to Michael for more details on our financials. Before our Q&A, I will come back to you with some additional thoughts. If I had to characterize this quarter in a single word, it would be discipline. We made a deliberate choice to prioritize underwriting quality over volume, and the numbers reflect that conviction. Our underwriting expense ratio improved, our actuarial estimates came in on target, and we returned $83 million to shareholders while growing book value per share, including the deferred gain, by 8.9%. That same discipline positions us well to capitalize on favorable market development, including the continued shift in the California rate environment. The California Bureau voted earlier this month to submit a second consecutive double-digit pure premium rate increase to the Commissioner, consistent with the underwriting conditions we have observed throughout the state. As we discussed last quarter, we expect pricing and underwriting actions will pressure growth throughout 2026. Our earned premium was essentially flat year over year, down 1%. The steps we took in certain jurisdictions and segments in 2025 are working as intended. New growth opportunities are now taking shape, including entering new underwriting segments, appointing new agents, and our recently launched excess workers’ compensation product. Profitable growth remains our North Star. Our first quarter actuarial review confirmed the adequacy of our prior-year reserves, with no strengthening required. We recognized a current accident year loss and LAE ratio of 72%, which is consistent with our 2025 accident year ratio. After delivering a record level of $215 million in capital to our shareholders in 2025, we continued our commitment by returning an additional $83 million in the first quarter through share repurchases and regular quarterly dividends. We also completed the $125 million new debt issuance associated with the recapitalization plan through cost-effective sources of $105 million from the Federal Home Loan Bank and $20 million from our credit facility, resulting in a weighted average pretax interest rate of 4.1%. These capital management steps reflect our continued confidence in our financial position, and commitment to delivering value to our shareholders. Along with our operational performance, these actions increased our book value per share, including the deferred gain, to $51.26. We believe our focus on disciplined underwriting, prudent risk management, and strategic investments continues to position us strongly in the workers’ compensation insurance market. With that, Michael will now provide a deeper dive into our first quarter financial results, and then I will return to provide my closing remarks. Michael Aldo Pedraja: Thank you, Kathy. Gross premiums written were $181 million compared to $212 million for the prior year, a decrease of 15% due primarily to a reduction in new business writings. Our losses and loss adjustment expenses were $129 million versus $121 million a year ago. The current quarter did not include any prior-period developments on our voluntary business, and the current accident year loss and LOE ratio of 72% is consistent with our 2025 accident year ratio. Commission expense was $24 million for the quarter, versus $23 million for the prior year, an increase of 3%, primarily driven by a nonrecurring 2025 favorable adjustment. Underwriting expenses were $41 million for the quarter, versus $43 million for the prior year, a decrease of 5%. The improvement in underwriting expenses for the quarter was due primarily to our continued expense management efforts, including reduced personnel costs and other variable costs such as policyholder dividends. Excluding returns from private equity partnership investments, our first quarter net investment income exceeded last year’s by $1.5 million. This outperformance was aided by the increased book yields and investment redeployment achieved through last year’s investment rebalancing. Our fixed maturities maintained a modified duration of 4.4 with a strong average credit quality of A+. Aided by our investment rebalancing, our weighted average book yield was 4.9% at quarter end, compared to 4.5% for the prior year. Our adjusted net income, which excludes net realized and unrealized investment gains and losses, and the benefit of our LPT deferred gain amortization, was $10.3 million for the quarter compared to $21.3 million last year. During the quarter, we repurchased over 1.8 million shares of our common stock at an average price of $42.42 per share, or $76.9 million. The average repurchase price represented a 17% discount to our book value per share, including the deferred gain. During the period from 04/01/2026 through 04/28/2026, the company repurchased a further 353 thousand 547 shares of its common stock at an average price of $42.21 per share. As we have highlighted, we aim to be good stewards of our shareholders’ capital. At current price levels, we are convinced that Employers Holdings, Inc. stock is meaningfully undervalued, and executing share repurchases at these price levels produces a compelling return on investment and generates significant value for our continuing shareholders. With that, I will turn the call back to Kathy. Katherine Holt Antonello: Thank you, Michael. Yesterday, our Board of Directors declared a second quarter 2026 dividend of $0.34 per share, representing a 6.25% increase from the prior quarter. In addition, the Board approved a new $125 million share repurchase authorization through 12/31/2027. Operational discipline continued to drive results. Our underwriting expense ratio improved to 22.6%, compared to 23.4% a year ago. As I highlighted last quarter, we are convinced that our utilization of artificial intelligence tools will be a force multiplier, allowing our colleagues to be more efficient and effective. Last month, we brought together approximately 400 employees from across the country to introduce our strategy for implementing AI throughout the organization. The enthusiasm both at the event and in the weeks since have been overwhelmingly positive, and we believe we are creating an innovative culture that will drive differentiated results. We have now moved from AI experimentation to deployment of products using AI. Our vision is that AI will play an increasing role in how we operate going forward. The capabilities that supported our rapid entry into excess workers’ compensation are now being used to improve underwriting insights, automate premium audit and claims operations, and engage our customers. We are convinced that our monoline focus, relatively small size, and flat organizational structure will be an advantage for us as we accelerate AI into every aspect of our company. We recently became the first insurance carrier to bring quoting directly into ChatGPT, made possible by our patented technology, which we designed to reach business owners where and how they engage. Rather than waiting for the industry to define this channel, we defined it ourselves. That is the kind of culture and capability that distinguishes Employers Holdings, Inc., and it is what we will continue to build on. We believe Employers Holdings, Inc. is well positioned and well capitalized to achieve our goals. With total capitalization of approximately $1 billion, a strong A.M. Best A rating, and technology-enabled distribution that can reach customers where they engage, we are in a position to deliver lasting value for our shareholders, customers, and colleagues. We will now open the call for questions. Operator: As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. Our first question comes from Mark Douglas Hughes with Truist. Your line is open. Mark Douglas Hughes: Hey, Kathy. Hey, Michael. Good morning. Could you talk about the competitive environment in California? You described the proposed another double-digit rate increase. How much are you realizing in the California market? Is the broader market—the competition—did they follow suit with the first rate increase? How do you see things developing there? Katherine Holt Antonello: Yes. Let me talk, if you do not mind, about pricing in general and then we can get into California. When I think about pricing across workers’ compensation, especially in guaranteed cost, I would say I used to characterize the pricing environment as competitive. I would now say it is closer to getting somewhat irrational in some jurisdictions and premium bands. Specifically, I would call out guaranteed cost middle market. We are seeing that there are some diligent carriers—and I think we are included in that group—exiting certain states and classes. Some of the states that I would mention, not specific to us but just across the market that we have seen exits, are New York, California, and Massachusetts. We are also seeing tightening risk selection in states like Florida, where there is not a lot of pricing flexibility to begin with. For us, we pulled back significantly in Massachusetts, and we have also pulled back in certain class codes. We have also cut ties with a few MGAs that we feel were underperforming. I do not believe that all companies are being as forward-looking as we are in terms of rate adequacy. In certain jurisdictions, including California, it is possible that the market in certain jurisdictions has really crossed over into what I would call cash flow underwriting. You asked about the rate that we are achieving. When we look at our book of business and when we adjust for changes in the mix of business, meaning class code mix, and we compare 2026 to 2025, payrolls were up about 0.5%, and our average rate on renewals countrywide increased about 6%. So that is quarter over quarter, 2026 to 2025. I would say a significant portion of that is coming from California, where we are getting double-digit rate increases on our renewals. When we look at where our opportunities for growth are, I would include segments where we have a differentiated distribution strategy. I am speaking to payroll partners and digital agents/marketplaces; we are still seeing a lot of growth opportunity there. We have also identified some jurisdictions where we have opportunities to increase our market share and where the pricing margins remain very attractive. So we are focusing heavily on those areas, and I would include what I said in the prepared remarks: we are appointing more agents in the areas where we feel like there is better pricing margin, and perhaps in certain states where we entered that state maybe four or five years ago pre-COVID, but we feel like it is now a good time to increase our market share there. I would like to add that at the top of our funnel, when we look at submissions coming in, California does appear to be a hardening market to some extent because submissions were the highest that we have seen across the company—and specifically in California—in 2026 that we have ever seen. So submissions at the top of the funnel, including both count and premium, are very high at this time. We are just being very specific about where we are willing to quote, and where we feel like the pricing is unreasonable, we are just not playing there. In terms of growth, I would also say our appetite expansion effort has been huge. It has been an area of growth for us over the last four years since we started doing that, and we are going to continue to do that going forward and enter into new products like excess and others that we have on the horizon. Mark Douglas Hughes: Appreciate all that detail. When you describe closer to irrational, can you apply that broadly? You talked about specific jurisdictions where you are seeing pressure, but if you were to categorize the whole market, would that closer to irrational still apply? Katherine Holt Antonello: I would not broad-brush it. Specifically, I would say the first place that we saw this happening—and this was even last year—in the middle market space, the first-dollar middle market space became very competitive and continues to be competitive, to the point where we are just not willing to quote in certain instances where we feel like the margin is not there. Mark Douglas Hughes: How about the outlook for reserve development? You have talked about you know, only maybe a Q2/Q4 where you do the reserve development, you have the potential for favorable or adverse, I guess. On a go-forward basis, would you say at least for the time being it is probably balance sheet—you would be protecting the balance sheet rather than recognizing any favorable that might emerge—or will that be more dependent on just what you see? Katherine Holt Antonello: I think it would be the latter. It is going to be more dependent on what we see and how compelling the numbers are. You are correct in stating we do an actual versus expected analysis at the end of Q1 and Q3. At the end of Q2 and Q4, we do a full analysis where we reselect development factors, and it is a much deeper dive. We have always said that in Q1 or Q3, if we saw something very compelling, we would likely make a move; we would not wait. This quarter, there are always puts and takes depending on how you divide the data, but everything came in right around where we expected, so we did not feel compelled to make a change. We will wait and see how things develop in Q2 and make a decision then as to whether or not we would act on favorable development. Mark Douglas Hughes: Michael, the audit premium impact in the quarter—how much did it help or hinder the growth? Michael Aldo Pedraja: It is relatively small—about a $5 million adjustment in the first quarter. We are seeing premiums generally, and as we talked about last time, payrolls moderating. Payroll increases are not developing as they were after COVID. We see a really moderating level of payrolls currently, and we see that into the future. Mark Douglas Hughes: Kathy, what are your spidey senses telling you about what NCCI is going to say in a week or two about reserve adequacy, medical inflation—kind of the hot button? Katherine Holt Antonello: I am not deep into the numbers like I used to be. I do not have as much insight being an outsider from NCCI now. But my gut would say that accident year 2025 will continue to show a slight increase, and that has been the case over the last few years. I would expect the level of redundancy for the industry as a whole to decrease. In terms of inflation, we are not seeing anything significant that is impacting our book of business. We continue to track—we have an internal prescription drug index—and it is up slightly, but it is not what I would call anything alarming. You would expect it to be up slightly. From what I am expecting them to present, I would not see anything significant come through on inflation or medical severity. Mark Douglas Hughes: Thank you very much. Operator: Thank you, Mark. As a reminder, to ask a question, please press 11. Our next question comes from Karol Chmiel with Citizens. Your line is open. Karol Chmiel: Hi, good morning. Just a question regarding the top line. With the quarterly decline, and with the context of the planned multiquarter nonrenewal of certain business classes, would you categorize it as ahead of expectations in terms of timing? Michael Aldo Pedraja: Yes. Hey, Karol. How are you? I think this is exactly as we expected and planned. Last quarter we indicated that we expected to continue that level of teens-type reduction. We expect to have that same level of performance throughout the rest of the year. Katherine Holt Antonello: I would agree, and having said that, we are opening new markets and new segments like I mentioned earlier in my response to Mark. We are expecting something similar throughout 2026, but we will be introducing new areas throughout the year too. Michael Aldo Pedraja: That is a really good point. I think towards the end of the year you will start to see all the adjustments we have made flow through, and then we expect to see that transition start to be visible through the results. Karol Chmiel: Excellent. Thank you for the detail. Katherine Holt Antonello: Thanks, Karol. Operator: Thank you. Again, that is 11 to ask a question. I am showing no further questions at this time. I would now like to turn it back to Katherine Holt Antonello for closing remarks. Katherine Holt Antonello: Thank you, Daniel, and thank you, everyone, for joining us this morning. We look forward to meeting with you again in July. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Balchem Corporation First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1. If you would like to withdraw your question, again, press star 1. Thank you. I would now like to turn the call over to Martin Bengtsson, Chief Financial Officer. You may begin. Martin Bengtsson: Thank you. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending March 31, 2026. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our Chairman, President, and CEO. Following the advice of our counsel, auditors, and the SEC, at this time, I would like to read our forward-looking statement. Statements made in today's call that are not historical facts are considered forward-looking statements. We can give no assurance that the expectations reflected in forward-looking statements will prove correct and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in Balchem Corporation’s most recent Form 10-Ks, 10-Q, and 8-K reports. The company assumes no obligation to update these forward-looking statements. Today's call and commentary also include non-GAAP financial measures. Please refer to the reconciliations in our earnings release for further details. I will now turn the call over to Ted Harris, our Chairman, President, and CEO. Ted Harris: Thanks, Martin. Good morning, and welcome to our conference call. We were extremely pleased with the financial results for the quarter and the overall performance of our company as we kicked off the new year with positive momentum from the strong performance throughout 2025. Our healthy growth continues to be fueled by ongoing market penetration of our unique portfolio of specialty nutrients and delivery systems, and the favorable “better for you” trends within the food and nutrition markets that are well aligned with our food ingredient formulation systems and capabilities. We delivered record first quarter consolidated sales, adjusted EBITDA, adjusted net earnings, and adjusted EPS, as well as strong cash flows. We also delivered year-over-year sales and earnings growth in all three of our reporting segments. The first quarter of 2026 was the twenty-seventh consecutive quarter of quarterly year-over-year growth in adjusted EBITDA for Balchem Corporation. We are very proud of this accomplishment, particularly in light of the market environment within which we have operated over the last twenty-seven quarters. Before we get into more detail on the quarter, I would like to make a few comments about the overall market environment, including the evolving geopolitical and macroeconomic situation, as well as some of the progress we have made on several important strategic initiatives. We continue to see healthy demand across the vast majority of our end markets. Our Human Nutrition and Health segment continues to perform very well, driven by healthy demand for both our unique portfolio of minerals, nutrients, and vitamins and our food ingredients and solutions, which are benefiting from trends toward nutrient-dense high-protein, high-fiber, and low-sugar or “better for you” foods where our nutrient portfolio and our formulations expertise bring considerable value to our customers. In the Animal Nutrition and Health segment, we delivered another quarter of year-over-year growth on improved demand in both our monogastric and ruminant businesses as a result of further market penetration of our rumen-protected precision release encapsulated nutrient portfolio and the ongoing improvement of market conditions in the European monogastric market. And we remain encouraged by the overall performance of our Animal Nutrition and Health product portfolio. Within our Specialty Products segment, both our performance gases and our plant nutrition businesses are performing well, driven primarily by higher demand within performance gases as a result of healthier market conditions and successful margin management and geographic expansion growth within plant nutrition. As we have shown over the years, we have been able to deliver strong historical performance while facing significant market volatility. We believe we remain well positioned to effectively manage through this current geopolitical and macroeconomic environment as well. We are once again entering a period of significant inflation, largely petrochemical-based and primarily impacting our Animal Nutrition and Health segment, as well as potential supply chain disruptions due to the ongoing conflict in the Middle East. We will once again leverage our robust global supply chain, our procurement expertise, and our strong market positions to raise prices where necessary to help manage through this dynamic market environment. While we are likely to experience some modest margin compression resulting from the timing lag that occurs between input cost inflation and pricing adjustments, particularly within our Animal Nutrition and Health segment, we do expect to deliver continued quarterly year-over-year growth on a consolidated basis over the coming quarters. We will continue to monitor the developments closely and adjust accordingly as we have done effectively in the past. Additionally, I would like to share some significant progress we have made on several important strategic initiatives that will further support our future growth. A newly published peer-reviewed research study using functional magnetic resonance imaging, a noninvasive safe neuroimaging procedure that measures brain activity by detecting changes in blood flow and oxygenation, was published in the peer-reviewed journal Nutrients. This important study examined the effects of Balchem’s Vidacholine nutrient on working memory-related brain activation and functional connectivity in postmenopausal women. The results showed that Vidacholine intake significantly enhanced functional connectivity within the working memory network, improving brain efficiency within three hours of consumption. This study helps highlight the benefits of Vidacholine across different life stages, with previous research showing that Vidacholine supports fetal brain development during pregnancy and lactation with lasting effects beyond birth. It also suggests that Vidacholine may help enhance cognitive health in older adults. We are excited about these results, and we will continue to invest in both research and marketing around Vidacholine to raise awareness and drive market penetration of this important essential nutrient. Additionally, on April 22, Earth Day, we released our 2025 sustainability report highlighting our sustainability initiatives and accomplishments. Guided by our core values and our vision of making the world a healthier place, our sustainability report demonstrates our commitment to bringing innovative solutions for global health and nutrition needs and to operate with excellence as strong stewards of our employees, customers, shareholders, and communities. We are very proud of the progress made on our 2030 sustainability goals to reduce both greenhouse gas emissions and water usage by 25% compared to our 2020 baseline. In 2025, we successfully reduced scope one and two greenhouse gas emissions by approximately 31%, surpassing our 2030 goal, and we reduced water withdrawal by approximately 16%, showing substantial progress toward our water usage reduction objective. Now regarding the first quarter financial results. This morning, we reported record quarterly consolidated revenue of $271 million, which was 8.1% higher than the prior-year quarter. We delivered record quarterly GAAP earnings from operations of $56 million, an increase of 9% versus the prior year. Consolidated net income closed the quarter at $40 million, an increase of 8.7%. This quarterly net income translated to diluted net earnings per share of $1.25 on a GAAP basis, up 10.6%. On an adjusted basis, we delivered record quarterly adjusted EBITDA of $74 million, an increase of 12.1%. Our quarterly adjusted net earnings were $43 million, an increase of 7.4%, which translated to $1.33 per diluted share, up 9%. Overall, it was an excellent quarter for Balchem Corporation, marked by strong financial results and meaningful progress made on our strategic priorities. With that, I am now going to turn the call back over to Martin to go through the first quarter financial results in more detail and the results for each of our business segments. Martin Bengtsson: Thank you, Ted. The first quarter was a strong start to 2026. Our record first quarter net sales of $271 million were 8.1% higher than the prior year, driven by strength across all three segments: Human Nutrition and Health, Animal Nutrition and Health, and Specialty Products. The impact from foreign currency exchange, driven primarily by the stronger euro, had a favorable impact to our sales growth of approximately 2% in the first quarter. Our gross margin dollars were $101 million, up 14.6%, and our gross margin percent expanded to 37.3% of sales, up 210 basis points. The gross margin performance was driven primarily by the sales growth and manufacturing efficiencies, partially offset by raw material inflation. Consolidated operating expenses for the first quarter were $45 million as compared to $37 million in the prior year. The increase was primarily due to higher compensation-related costs and an increase in professional services. GAAP earnings from operations for the first quarter were a record $56 million, an increase of 9%. On an adjusted basis, as detailed in our earnings release this morning, record non-GAAP earnings from operations of $61 million were up 9.5%. Adjusted EBITDA was a record $74 million, an increase of 12.1%, with an adjusted EBITDA margin rate of 27.4%. Net interest expense for the first quarter was $2 million, a decrease of $1 million, primarily driven by lower outstanding borrowings and lower interest rates. Our net debt was $96 million with an overall leverage ratio on a net debt basis of 0.3. The effective tax rates for 2026 and 2025 were 23.3% and 22.7%, respectively. The increase in the effective tax rate on the prior year was primarily due to an increase in certain state taxes. Consolidated net income closed the quarter at $40 million, up 8.7%. This quarterly net income translated into diluted net earnings per share of $1.25, a 10.6% increase. On an adjusted basis, our first quarter adjusted net earnings were $43 million, an increase of 7.4%, which translated to $1.33 per diluted share. Cash flows from operations were $40 million with free cash flow of $34 million, and we closed out the quarter with $73 million of cash on the balance sheet. As we look at the first quarter from a segment perspective, our Human Nutrition and Health segment saw sales of $172 million, up 8.3%, driven by growth in both our nutrients business and our food ingredients and solutions businesses. Earnings from operations were $40 million, up 5.4%, driven by the higher sales and a favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses. First quarter adjusted earnings from operations for this segment were $43 million, up 6%. We were encouraged by the continued momentum in Human Nutrition and Health, where our differentiated ingredients and solutions align with a consumer shift toward “better for you” nutrition. We believe this positions us well to further leverage our formulation expertise and portfolio of differentiated branded ingredients to drive sustained growth. Our Animal Nutrition and Health segment delivered sales of $62 million, up 8.6%. The increase was driven by higher sales in both the monogastric and ruminant businesses. Animal Nutrition and Health delivered earnings from operations of $6 million, up 8.7%, driven by the higher sales, partially offset by certain higher manufacturing input costs and higher operating expenses. First quarter adjusted earnings from operations for this segment were $6 million, up 8.2%. We delivered another quarter of improved performance in our Animal Nutrition and Health segment. We continue to drive adoption of our EnCaPPS encapsulated rumen-protected nutrients in the dairy market. Our U.S. monogastric business remains steady, and our European monogastric business continued to improve following the EU antidumping duties. Looking ahead, we are paying careful attention to the conflict in the Middle East and the potential impacts it may have on the animal nutrition markets. We are seeing increases in raw material input costs along with increased freight costs, which will need to be offset or passed on to our customers. We feel good about the momentum we have built within our Animal Nutrition and Health segment, and while we are likely to experience some modest margin compression resulting from the timing lag that occurs between input cost inflation and pricing adjustments, we remain confident in our ability to continue to drive growth in this segment over time. Our Specialty Products segment delivered quarterly sales of $35 million, up 4.4%, driven by healthy growth in Performance Gases. Specialty Products delivered a record quarterly earnings from operations of $12 million, up 24.5%, driven primarily by higher sales and a favorable mix. First quarter adjusted earnings from operations for this segment were a record $13 million, up 21.2%. We were very pleased with the performance of Specialty Products, delivering yet another quarter of solid growth, and we believe Specialty Products is well positioned to continue to deliver consistent profitable growth as we look forward. Overall, the first quarter was another strong quarter for Balchem Corporation, and we are really pleased with the results. While the global geopolitical and macroeconomic environment remains dynamic and includes areas of uncertainty, we believe we are well positioned to continue executing our strategy and to deliver continued growth through the rest of 2026. I am now going to turn the call back over to Ted for some closing remarks. Ted Harris: Thanks, Martin. We were very pleased with the financial results reported earlier today. We executed well within a dynamic and evolving macroeconomic and geopolitical backdrop, delivering another strong quarter of solid growth while at the same time advancing our strategic initiatives. Looking ahead, we remain excited about 2026 and confident in our ability to deliver continued top and bottom line growth while further advancing our long-term growth platforms. I will now hand the call back over to Martin, who will open up the call for questions. Martin Bengtsson: Thank you, Ted. This now concludes the formal portion of the conference. We will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Robert James Labick from CJS Securities. Your line is open. Robert James Labick: Good morning. Congratulations on another record quarter. Martin Bengtsson: Thank you, Bob. Thanks, Bob. Robert James Labick: Thanks. One of the keys to your growth and success has been the branded ingredients. And, Ted, you spoke a little about Vidacholine already. I know you are early-ish on a branding strategy so far, but what percent of sales are branded out of what is applicable now, and what could that look like in five or ten years? Ted Harris: Yeah. Again, Bob, thanks for your comments. Our branded ingredients—and let us just talk about Human Nutrition and Health—make up about, I would say, 40% to 50% of our Human Nutrition and Health business today. That does not mean to say on the other 50% to 60% we do not have brands, but they are more B2B brands. The power brands, we refer to them, like Vidacholine that you talked about, K2 Vital and K2 Vital Delta, Opti MSM, Albion Minerals, for example, are brands that obviously we are selling to supplement and nutritional beverage manufacturers but are recognized by the consumer. Those are the ones that we are really investing in. So let us say 40% to 50% of H&H today, and that part of the business is obviously growing faster than the other parts of the portfolio. So over time, it will clearly become a bigger and bigger part of our portfolio. Robert James Labick: Okay. Great. And we have talked on previous calls about the Jets partnership and the new customers that have come, notably in Vidacholine and, I think, energy drinks in particular. Are there other areas of expansion still to come from this? Are there opportunities for just more general sports drinks versus energy drinks? Or how do you take the company down that path if possible? Ted Harris: Yeah. So, you know, obviously, historically, supplements have been our primary targeted market, but as you mentioned, we have had pretty significant success more recently relative to sports beverages, energy drinks, and the like. As you can imagine, it is a great application for our products, partly because you do not have the capacity or volume limitation that you can have in a supplement or a multivitamin, and we have found it to be an excellent application for our products. Trends are leading to significant growth in those areas. So I do think that that will continue to grow and, you know, kind of that word “energy drink” versus “nutritional beverage,” I do think many of these products started to be more in the energy drink category, and now those drinks are expanding much more broadly to more of a nutritional beverage focus, meal replacement focus, a much healthier product—or “better for you” product—to use those words, than the historical energy drinks. We really believe that the nutritional beverage market is a significant opportunity for us and will grow rapidly over time. So I think that is really where the predominance of our opportunity lies in the near to midterm. Relative to investing marketing dollars in the brands, it does expand far beyond partnering with an NFL team. We are already partnering with a women’s professional soccer team in Europe, the Bayern Munich women’s team. We are investing in other influencer areas, digital media areas, and so forth. We do continue to expand that effort in other areas. I think we talked about on calls many quarters ago that the investment in the Jets was a pilot to some extent. We certainly look back on that as being a pilot and one that we want to now expand through other consumer marketing awareness campaigns, some of which I just mentioned. Robert James Labick: Okay. Super. And one last one for me. I will jump back in queue. Looking at the P&L, the gross margins—the 37.3%—surprised on the upside. It was really strong, in fact. So maybe just give us a little more detail on what drove that. And I know with raw material cost pressures coming, how should we think about gross margins going forward? Martin Bengtsson: Yeah, Bob, strong performance on the gross margin, as you point out, and as you are familiar, we have talked about in the past that we do have a favorable tailwind in our portfolio from the fact that our higher-margin businesses are the ones growing the fastest—so minerals and nutrients in H&H being an example of that. Similarly, on the Animal Nutrition side, ruminant being higher margin and generally growing faster than monogastric. Just from a portfolio perspective, we have that tailwind that supports expansion of the margins. On top of that, we have been fairly effective more recently at managing the balance between price and inflation and driving some benefits that way as well, along with having effective manufacturing operations here supporting the P&L. So everything has just been working fairly well from a gross margin perspective, and you are seeing that come through. The reference we made to seeing inflation is true and real. We do see inflation coming, and we see that accelerating a bit with what is happening in the Middle East. As you know from the past, when we went through this with COVID, we have been quite effective historically at managing that both through our supply chain and our procurement, but also in terms of pricing that through to our customers where needed. But it tends to have a little bit of a dilutive impact—if your costs go up a dollar and you price through a dollar, mathematically, your margin rate goes down. I think we will see a little bit of that to a modest extent as we go forward in this inflationary environment. So while we continue to grow our margin dollars, we may see a little bit of a margin rate compression as a result of the environment. Robert James Labick: Okay. Got it. Thank you, and congrats again. I will get back in queue. Operator: Your next question comes from the line of Ram Selvaraju from H.C. Wainwright. Your line is open. Ram Selvaraju: Thanks so much for taking our questions. First, I was wondering if you could comment on the ongoing evolution of your thinking regarding the positioning of Vidacholine, and in particular, how you are thinking about optimizing the value of this franchise, especially given the most recent data that you cited published in the peer-reviewed journal Nutrients, and how this might evolve going forward when you think about, historically, the work that has already been done demonstrating that choline is an essential prenatal nutrient. Now you have data showing that it has applicability to enhance potentially cognitive health in older adults. Just give us a sense of how you are thinking about the evolution of that brand and how best to position it, particularly from the perspective of promotional and marketing strategies that you may not necessarily have employed in the past. Secondly, I think it would be helpful if you could give us a sense, particularly in light of the most recent geopolitical developments, how this might affect the industrial side of Balchem Corporation’s business, especially when we think about potentially increased U.S. stateside-based oil and petroleum production that may include enhanced fracking activity. And then lastly, Martin, I was wondering if you could just comment on the effective tax rate. It was a little bit ahead of what we had originally projected, so I was wondering if we should use that as the serviceable tax rate assumption going forward, or if you anticipate the effective tax rate to modulate a little bit over the course of the remainder of this year. Thank you. Ted Harris: Thanks, Ram, for your questions. Maybe I will take the first two and Martin can answer the last one. I will start with your second one around industrial. As everybody knows, we no longer report out industrial separately. But that business has continued for a number of years at a very low level, I would say, but that business is clearly up. It is still not a measurable contributor to our overall results, but regardless of that, the results are up, sales are up, demand is up, which is what you would expect given the current situation with increased activity in that part of the economy. So we are seeing new business from that. Again, it is not to a material nature, and we strongly believe it will never return to what it once was, but it is nice to see higher demand in that area based on the increased activity. Relative to the ongoing Vidacholine positioning, we are really excited about the results of this most recent study, specifically for servicing postmenopausal women in that community and that targeted market, but it does suggest that older adults can benefit from Vidacholine intake more broadly. That is a huge market compared to the prenatal market that you mentioned. Historically, choline was a product that was sold into infant formula and really did not even appear that much in prenatal vitamins. I think we can look back and say we were very, very successful in doing the science and having the studies to support the prenatal market, and today it really is broadly part of a prenatal vitamin regimen. It is incredibly rare for me to ask a pregnant woman what her vitamin regimen is and it not to include choline. I think we have been very successful there. The reality is that is a relatively small market. So this could be an absolute breakthrough from a Vidacholine perspective and really open up that, as I used the word earlier, huge adult cognition market. I think it is an early study. It is a study that has definitive results for postmenopausal women. We need more studies for sure to show effectiveness across a wider segment of the population in that age group, but this is a good first start, and we always expected this to be the start. So we are investing in some more studies. And then, as we have also learned, we need to support that science and those studies with marketing. Obviously, marketing to aging adults that either are experiencing cognitive issues or are concerned about cognitive issues is a very different marketing campaign to positioning Vidacholine as a nutrient that athletes should take, as we were doing for the New York Jets. So we will have to reposition our marketing efforts—or newly position our marketing efforts—to support the emerging science in this area and to build awareness in the aging population and ultimately to drive market penetration of Vidacholine in that category. That is exactly what we are going to do. With that, I will hand it over to Martin to talk about tax. Martin Bengtsson: Yes, Ram. As we spoke about in the past, we tend to use a 23% effective tax rate as the planning rate, and I think when we spoke last time, I thought we would probably err on the side of doing better than that. In Q1, we had 23.3%, so a bit above that just based on timing of various items and some changes in state tax laws that impacted that negatively, and also various discrete items that hit the quarters differently. As we look forward here, I think the rate will be higher in Q2 as well versus that 23%, and then I think it will be lower in the back half of the year as we work our way towards that 23%. I think it is still a good planning rate to use—the 23%—as you model things for the full year. Ram Selvaraju: Thank you so much, and congrats again on a very solid quarter. Operator: Your next question comes from the line of Daniel Harriman from Sidoti. Your line is open. Daniel Harriman: Ted, Martin, good morning. Thank you so much for taking my questions, and again, congratulations on continued execution and great performance. I have two questions this morning. I will start with one for Ted. Last quarter, I touched on—or asked you about—international growth, and I was just wondering if you might be able to provide us an update or if there is anything going on that we should pay attention to there across the three businesses. And then, Martin, on the European monogastric side of things, I was just curious if you could give a little bit more color about where we are in the recovery there and if there is more room for you in terms of both volume and pricing. Really appreciate it. Thank you. Ted Harris: Yeah. On the geographic expansion and international growth, that continues to be a primary strategic focus area for our company, and one that we feel really good about the progress we are making. Part of that progress involves hiring people in the various international regions around the world. We are doing that, and we are hiring really good people. I would say when you look at our OpEx this quarter, Martin talked a little bit about it being higher than normal, and part of that, at least, is driven by some one-time items, but part of it is also driven by an investment in sales and marketing around the globe as we do invest in geographic expansion. So we are making good progress in hiring people, building out the infrastructure that we need to drive geographic expansion, and the results are showing. We are seeing higher growth rates in most international locations versus the U.S. We are still driving really good growth in the U.S., but the international growth rates have been better for us because of the low base that we are starting from. We are focused on it. It is a primary strategic objective for us, and we are making really good progress relative to that strategic initiative. Martin Bengtsson: Yeah. On Animal Nutrition in Europe and the recovery of the monogastric business there, we are clearly seeing an uptick following the antidumping. In Q1, we did see a double-digit volume improvement, so it is definitely there, combined with improved pricing. There is clearly an upwards trend in that business that I think has the potential to continue to strengthen further. The impacts that we are keeping an eye on right now are really stemming from the Middle East conflict and whether or not that will have an impact to the European end markets, given the higher input costs that they will be facing going forward. But in terms of the EU antidumping, we are clearly seeing benefits from that at the moment. Daniel Harriman: That is really helpful. Thank you again, guys. Operator: Your next question comes from the line of Artem Chubara from Rothschild Redburn. Your line is open. Artem Chubara: Thank you. Hello, Ted and Martin. Congrats on a good quarter. I would like to ask two questions. The first one, H&H—any color on how nutrients or food ingredients business performed in the quarter would be helpful just to understand the magnitude of growth and whether you expect these to persist. And the second question is on Specialty Products. Obviously, you have reported quite exceptional improvement in profitability, so it would be helpful to understand where it came from—perhaps whether it was price or volume—and how that developed by region, whether it was Europe or the U.S. Thank you. Ted Harris: Sure. Maybe I will take a stab at this and Martin can chime in as needed. We were really pleased with the overall performance of H&H, really as we have been for many quarters. The story, I would say, in Q1 was very similar to the story that has played out over previous quarters, so not much changing. The minerals and nutrients portfolio is growing very strongly—I would say double-digit growth—fueled particularly by growth in our minerals business, which is performing outstandingly broadly speaking, but all of the nutrients are growing nicely. That business is performing well and is really fueled by, yes, to some extent the “better for you” trends, but also the adoption of supplementation and the inclusion of nutrients in beverages, as we talked about earlier. So a little bit more of the same, which I view as positive. The food ingredient and solutions business grew, I would say, lower- to mid-single digits. Again, it continues to grow at what I would say are nice rates for that business. That growth truly is being fueled by the “better for you” trends—whether it is meat sticks that we have talked about before where some of our ingredients are included, or high-protein bars, high-fiber beverages, organic high-fiber cereals—those kinds of products are really all performing very well for us and really driving the vast majority of growth within H&H. Again, I would say that story has been true for quite a number of quarters. Overall, we are very pleased with the performance of H&H, and we continue to believe that that story will continue for some time to come. We think it is quite sustainable. Relative to Specialty Products, it is a little bit of a different story. The favorable growth really is driven primarily from the Performance Gases part of Specialty Products. Again, very pleased with the overall performance of Specialty Products, but this quarter it was primarily driven by Performance Gases, where we are seeing healthy demand both in the U.S. and in Europe. It seems odd a number of years later to still be talking about the pandemic, but those were markets that were pretty severely impacted by the pandemic and it had a long played-out impact, I would say, on those markets. We would say those markets today are back to where they were—very healthy—and our business is doing very well, both in the U.S. and Europe, just on healthy demand. The growth, as we talked about, in Plant Nutrition has been primarily driven by geographic expansion over time. We did not deliver growth in Q1, but we are bullish about the performance of Plant Nutrition over the course of the year. We had significant margin improvement in that business in Q1, delivered healthy geographic expansion growth, and generally speaking, it is a healthy planting environment right now. Again, we feel good about our ability to deliver growth in that business this year. So really pleased with the performance of Specialty Products as well, and we believe that this performance that we have been delivering in that segment over the last number of quarters and in Q1 is sustainable. Hopefully that answers your questions. Artem Chubara: It does indeed. Thank you very much. Operator: That concludes our question and answer session. I will now turn the call back over to Ted Harris for closing remarks. Ted Harris: Yes, thank you very much. Once again, thank you all for joining our call today. We are very pleased with how we have started 2026, and we really appreciate your support and your time today. We look forward to reporting out our Q2 2026 results in late July. In the meantime, we will be participating in the Wells Fargo Industrials and Materials Conference in Chicago on June 10, and the CJS Summer Investor Conference in White Plains, New York on July 9. We certainly hope to see some of you there. Thanks again. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning. And welcome to Blue Owl Capital Inc.'s First Quarter 2026 Earnings Call. During the presentation, your lines will remain on listen only. After the presentation, there will be a question and answer session. To ask a question, please press star 1 on your telephone keypad. I would like to advise all parties that this conference call is being recorded. I will now turn the call over to Ann Dai. Ann Dai: Thanks, operator, and good morning to everyone. Joining me today are Marc S. Lipschultz, our co-chief executive officer, and Alan Jay Kirshenbaum, our chief financial officer. I would like to remind our listeners that remarks made during the call may contain forward-looking statements, which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described from time to time in Blue Owl Capital Inc.'s filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements. We would also like to remind everyone that we will refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the shareholder section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any Blue Owl Capital Inc. fund. This morning, we issued our financial results for the 2026 reporting period, including fee related earnings, or FRE, of $0.25 per share, and distributable earnings, or DE, of $0.19 per share. We declared a dividend of $0.23 per share for the first quarter payable on May 27, 2026 to holders of record as of May 13, 2026. During the call today, we will be referring to the earnings presentation, which we posted to our website this morning, so please have that on hand to follow along. With that, I would like to turn the call over to Marc. Marc S. Lipschultz: Great. Thank you so much, Ann. As we highlighted this morning in our results for 2026, we operate three differentiated platforms at scale, each of which has contributed to Blue Owl Capital Inc.'s expansion. Revenues increased by 13%, fee related earnings by 14%, and distributable earnings by 11% compared to 2025 against a backdrop of geopolitical uncertainty, interest rate volatility, and increased attention to private credit. Our financial results reflect stability, driven by our durable capital base, and growth driven by fundraising and ongoing capital deployment. We raised $57 billion of capital over the last twelve months, our second highest capital raise since inception, and $11 billion in the first quarter, which represents approximately 14% annualized on our AUM at the end of 2025. These fundraising results reflect investor interest across client channels and across our credit, real assets, and GP strategic capital platforms. In recent months, we spent time with clients and other stakeholders addressing the questions that have arisen around private credit. Our approach has been straightforward: answer those questions with facts across the business. Fundamental performance remains strong, portfolios remain strong, and the portfolios continue to behave in line with the discipline with which they were built. Compared to the last quarter, there is certainly more uncertainty in the macro and geopolitical landscape, and investors across all asset classes are faced with more questions than answers about the near-term environment. As we have observed in the past, times of heightened volatility and uncertainty tend to favor those with patient capital and longer duration, and market share has moved towards private players during those periods in the past. While we continue to see a healthy balance between the public and private markets, momentum has shifted in our direction in recent months, offering attractive investment opportunities that we are selectively leaning into. As it relates to fundraising, we continue to see good interest from a broad range of investors across an increasingly diverse set of strategies, resulting in $11 billion raised across equity and debt platform-wide during the first quarter. Institutional capital represented two-thirds of total equity raised for the first quarter, or $6.1 billion. These inflows came from approximately 80 institutional investors, with 47% of those commitments coming into our credit platform, 40% in real assets, and 13% in GP strategic capital. We received commitments from 33 new institutional clients during the quarter, and 14 existing Blue Owl Capital Inc. investors committed to new strategies, further deepening these relationships. We took in capital from institutional investors across every major market, with an increasing amount coming from non-U.S. investors over the past few years. In our private wealth channel, we raised approximately $3 billion of equity in the first quarter, primarily across net lease, direct lending, alternative credit, and digital infrastructure, highlighting that individual investors continue to allocate to alternatives. In particular, demand for real asset strategies has been solid, with over $7 billion raised in wealth for real assets over the last twelve months, a 2.5 times increase from the prior twelve-month period. Taken together, our fundraising results in the first quarter highlight three major takeaways. First, institutional and individual investors continue to allocate to products and strategies across the Blue Owl Capital Inc. platform. We think this speaks to our ongoing education efforts with investors through the years, and the differentiated returns we have generated as a result of rigorous underwriting, deliberate and thoughtful product construction, scale benefits, and ultimately long-dated strong performance. Second, the evolution and diversification of Blue Owl Capital Inc.'s platform has been and will continue to be an important driver of fundraising and earnings. As you can see on slide five in our earnings deck, today, direct lending represents only 37% of Blue Owl Capital Inc.'s AUM. To put this in context, real assets is now 27% of AUM, and GP strategic capital is 22%. Nearly three-quarters of equity capital we have raised over the last twelve months has been outside of direct lending. Alternative credit and net lease have grown their AUM by roughly 40% year-over-year, reflecting strong interest in these asset classes. Our digital infrastructure strategy, which is approximately 6% of AUM today, has significant runway ahead as we face unprecedented demand for data center capacity and continue to work closely with some of the largest, most innovative, and best-capitalized companies in the world. In fact, just a couple of months ago, Amazon announced a $12 billion data center campus with investment from Blue Owl Capital Inc.'s digital infrastructure funds and development by Stack Infrastructure, our scaled designer, developer, and operator of sustainable digital infrastructure. This marks the fourth data center project above $10 billion announced in less than eighteen months for which Blue Owl Capital Inc. will play a critical role. We held the final close of the first vintage of our GP-led secondary strategy, BOSE, during the quarter, above target at approximately $3 billion. We think this is a great outcome for a first-time fund, and it makes us a market leader in dedicated capital raised for GP-led secondaries. And as it relates to fundraising channels, institutional investors drove 67% of total equity capital raised in the first quarter, and in private wealth, nearly 70% of flows came from real assets, GP strategic capital, alternative credit, and GP-led secondaries during the first quarter. These strategies themselves constituted about 60% of private wealth flows over the last twelve months. These figures highlight an increasingly diversified set of high-quality in-demand strategies that offer investors significant income and downside protection. Finally, it is worth keeping the recent attention on our nontraded BDC flows in perspective. While the level of debate around private credit has resulted in elevated industry-wide redemption requests, the actual impact to Blue Owl Capital Inc.'s revenues and earnings for the first quarter was quite modest. During the quarter, net outflows of roughly $170 million from OCIC and OTIC were less than six basis points of our beginning-of-period AUM. As a reminder, these two funds collectively comprise less than 17% of our total AUM. For OCIC, redemption requests were concentrated, with 1% of investors representing a majority of tenders, and approximately 90% of the investor base elected not to tender at all. Generally, requests have been more investor-led than adviser-led, highlighting continued strong support from our partners in what we believe has been a headline-driven, not fundamental-driven, redemption environment. Notably, gross repurchases for our net lease nontraded REIT, Orent, were less than $134 million compared to inflows of $1.1 billion, resulting in net inflows of approximately $1 billion for the quarter compared to about $8 billion of fee-paying AUM at the end of 2025. Moving on to performance, which remains resilient across credit, real assets, and GP strategic capital. Our strategies have delivered attractive absolute returns and, on a relative basis, have generally outperformed their public indices since inception through a wide range of economic and market environments. To give a few examples, our direct lending strategy generated gross returns of 8.5% over the last twelve months and, more specifically, our largest nontraded BDC, OCIC, has delivered an attractive 9.1% annualized return over approximately five years since inception, demonstrating durability across a range of market environments. Over this period, Class I shares of OCIC have outperformed leveraged loans by more than 300 basis points, high-yield bonds by approximately 500 basis points, and traditional fixed income by approximately 900 basis points. In alternative credit, gross returns of 11% over the last twelve months have compared favorably to leveraged loans as well, outperforming by more than 600 basis points. Our net lease strategy has returned 14.7% over the last twelve months, outperforming the FTSE REIT index by over 1,100 basis points, and 1034% across funds three, four, and five. These funds are top quartile of DPI, and we were honored recently to be named the top large buyout firm in 2025 by HEC Paris Dow Jones in a category of nearly 700 firms, which we think recognizes our outstanding performance across these key metrics. I mentioned earlier that we were seeing the market move our way as a result of volatility, and GP stakes is a good example of this. Not only is fund performance strong, but we have substantial dry powder, and the pipeline continues to grow for this business. To bring this back to where I started: performance remains the clearest measure over time. What matters most in periods like this is whether the portfolios are behaving as expected, whether the underwriting is holding up, and whether the structural protections in the business are doing the work they are designed to do. On those measures, the quarter reinforced the stability and durability of the business, supported by continued growth and strong underlying fundamentals. We plan to continue communicating with our stakeholders transparently and candidly, and look forward to speaking with all of you in the weeks and months to come. With that, let me turn it to Alan to discuss our financial results. Alan Jay Kirshenbaum: Thank you, Marc, and good morning, everyone. Today, we reported another quarter of solid earnings growth and broad fundraising across the platform. As Marc noted, during the first quarter, we raised $11 billion of capital across a diverse set of products and strategies. As you can see on slide 14, while the first quarter is typically a seasonally lighter quarter for fundraising, we continue to see fundraising across a broader and more diversified platform, driven by ongoing diversification across products, strategies, and investor base. Compared to the first quarter of last year, equity capital raised grew by 35%. Staying on the theme of 1Q 2026 results versus a year-ago quarter, management fees are up 13%. You can see on slide 10 that we broke out management fee offsets this quarter, which we think helps investors get a better sense of the core trends across our business. FRE grew 14% and DE grew 11%. We modestly increased our FRE margin, expanding to 58.4% for the quarter versus our FRE margin for 2025 of 58.3%. AUM not yet paying fees increased to $30 billion, representing approximately $350 million of expected annual management fees once deployed. This is equivalent to approximately 14% embedded growth off of our 2025 management fees. Turning to our platforms, in credit, the $4 billion of equity capital we raised during the first quarter included about $1 billion raised in our nontraded BDCs, and over half a billion dollars raised for each of GP-led secondaries, alternative credit, and liquid and IG credit. During the quarter, we held the final closes for both our GP-led secondary fund, BOSE, and our alternative credit opportunities fund, ASOP 9, around $3 billion each, with both closing above their targets—strong outcomes in the current environment. In direct lending, last twelve-month growth and net originations were $39.4 billion and $8.2 billion, respectively. Repayments in the portfolio were $6.4 billion for the first quarter and over $27 billion in 2025, highlighting significant liquidity in our direct lending funds just from repayment activity alone. As Marc mentioned earlier, the market conditions that create volatility in public markets also tend to result in spread widening and a decline in available capital across asset classes. We are beginning to see this in the origination pipeline, with spreads at least 50 basis points wider. More importantly, the portfolios continue to behave in line with the discipline with which they were built. We have included some additional slides and disclosure in the supplemental information section of our earnings presentation. Slides 24 and 25 show a series of KPIs for each of our BDCs as of December 31, which we will update through March 31 in our investor presentation. Slide 26 compares some of these KPIs with the leveraged loan and high-yield markets. And finally, slide 27 compares the performance of our BDCs to the leveraged loan and high-yield markets. Now to run through some of these here: in direct lending, underlying portfolio company growth has remained healthy, with no meaningful adverse movement in metrics such as our watch list, nonaccruals, amendment requests, or revolver draws. Our average annual loss rate remains a very low 12 basis points, an important factor in driving our continued outperformance to leveraged loan and high-yield indices. On average, our borrowers have delivered last twelve months revenue and EBITDA growth in the mid to high single digits. In our tech lending portfolio, we have continued to see higher growth compared to our overall diversified lending portfolio, with LTM revenue and EBITDA growth in the high single-digit to low double-digit range on average. LTVs have picked up modestly, incorporating moves in public comps and broad-based spread widening. As a result, LTVs are, on average, in the low forties across our platform and in the tech lending portfolio, continuing to illustrate meaningful equity cushion below our senior secured positions even in the face of compressed equity market multiples. And outside of direct lending, we deployed an additional $2.8 billion on a gross basis across our other credit strategies in the first quarter. And as Marc mentioned, the opportunity set is expanding across the risk-reward spectrum, and we are engaging where the risk-adjusted return is compelling. In real assets, net lease contributed about $3 billion of the $4 billion of equity capital raised in the first quarter, roughly split between the wealth and institutional channels. In total, we have reached $5.8 billion raised for the latest vintage of our net lease flagship and continue to expect to hit our hard cap of $7.5 billion by the end of this year. For Orent, our nontraded REIT, over $200 million of the $1.1 billion raised in the first quarter came from 1031 exchange structures, and Orent experienced its lowest percent repurchase quarter in seven quarters. Deployment in real assets continued to accelerate, increasing more than 100% year-over-year to approximately $20 billion over the last twelve months, supported by the completion of build-to-suit projects in net lease and new commitments in digital infrastructure. In net lease fund six, we have fully committed the fund and have reached two-thirds of capital called, with visibility to be virtually fully called by this summer, in line with our prior expectations and within three years of its final close. Our net lease pipeline remains around all-time highs with $50 billion of transaction volume under letter of intent or contract to close. In digital infrastructure, we are also seeing a substantial pipeline of over $100 billion and have now called over 75% of the capital in fund three, just a year after its final close in April 2025. We continue to be on track for an initial close of the next vintage of our flagship fund in the back half of this year. In our real assets platform, we now manage $85 billion of AUM, up 27% over the last year, and specifically for net lease, up 38% year-over-year. We are seeing these strategies resonate with investors looking for income-oriented returns backed by mission-critical assets and investment-grade counterparties across logistics, manufacturing, healthcare, and data centers. In GP strategic capital, we raised $900 million primarily in our flagship vehicle and co-invest during the first quarter, with the total raised in our sixth vintage approaching $10 billion inclusive of co-invest. In March, we made an investment into Atlas, a leading investment platform with a differentiated owner-operator model within the industrial, manufacturing, and distribution space, and we continue to see a robust pipeline for deployment in our latest flagship fund, which is now about 40% committed on our target. Finally, I would like to offer some high-level thoughts on a few items. First, we remain focused on disciplined expense management. We demonstrated FRE margin expansion in 1Q, and continue to see a path to achieve our goal of 58.5% FRE margins for 2026. We declared our quarterly dividend, which we had announced on our last earnings call. We remain committed to paying out our $0.92 dividend for 2026. Our business is broader and more diversified than it was even a few years ago, and we will continue to measure ourselves by performance, portfolio behavior, and the consistency of our results over time. Thank you very much for joining us this morning. Operator, can we please open the line for questions? Operator: We will now open the call for questions. Thank you. Star 1 on your telephone keypad. If you would like to withdraw your question, simply press 1 again. We ask that you limit yourself to one question, and please rejoin the queue if needed. Thank you. Your first question comes from Craig Siegenthaler with Bank of America. Your line is open. Craig William Siegenthaler: Good morning, Marc, Alan. Hope everyone is doing well. My question is on the $6 billion of institutional fundraising in the quarter. Can you help us size the credit inflows and also which specific funds saw the inflows? I saw your broad comments on direct lending and strategic equity. I was hoping to get a little more detail on the fund, help us think about the fee rate dynamics, and also the sustainability too. Thank you, guys. Marc S. Lipschultz: Sure. Thanks, Craig. You as well. We continue to see flows come through up and down across our credit platform. We continue to see flows into direct lending products like ODL and SMAs. We certainly had about $1 billion come into our nontraded BDCs, OCIC and OTIC, so we saw inflows there. We continue to see, as you noted, ASOP 9; we did our final close. Alt credit continues to grow in line with what we talked about last quarter. Continued very strong growth from the alt credit business. Alan Jay Kirshenbaum: So it is really coming through up and down the board there. Marc S. Lipschultz: One add-on, which I will call more qualitative. We are noticing institutions are observing that direct lending and credit at large is actually working very, very well. In contrast, perhaps, to what the sentiment is in the air, I think institutions are actually seeing that this is an appealing time to look at credit. In fact, some who perhaps had paused credit might be very well coming back. Remember, spreads are starting to widen again, and these moments in time, as I commented a moment ago, when markets are like this, generally speaking, have tended to favor opportunities in private markets, and I think institutions know that. Ann Dai: Thank you, Craig. Thank you. Operator: Your next question comes from Bill Katz of TD Cowen. Your line is open. William Raymond Katz: Thank you very much. I appreciate the extra disclosure. Super helpful. Just coming back to wealth—excuse me—wonder if you could provide a little more color. You mentioned that a lot of the redemptions were driven by investors rather than financial advisers. Can you give us a sense of what you are hearing from the gatekeepers around a couple different dynamics here? Number one, how they are thinking about maybe the appetite for direct lending given spreads are widening out. Where are you seeing the flows going if they are in fact leaving direct lending, on-listing in your ecosystem and just moving to other vehicles like Orent, etc.? And then I think you mentioned that spreads are widening out a little bit. Can you give us a little bit of an update on maybe gross and net deployment into the new quarter? Thank you. Alan Jay Kirshenbaum: Sure, Bill, thank you for the question, and thank you for your feedback on the added disclosure. When we are on the road, we talk to folks. Folks have asked for added disclosure, and we want the opportunity to show the markets what we are seeing in direct lending, as Marc just commented on a minute ago. So there is a little in your questions I want to unpack. First, our discussions with financial advisers, generally speaking, they want the products to work as designed: 5% tenders per quarter, not more. The reason for the 5%, and the reason clients want us to keep it, is so that shareholders benefit from the asset class and the illiquidity premium that they are receiving. And as we pointed out, back to your comment, in our earnings presentation and the supplemental information, that has worked as designed. Our products have meaningfully outperformed the public loan markets. With these structures, the assets are matched duration with the structure, and better. What do I mean by that? For example, paydowns in OCIC were almost $3 billion this quarter, regular-way paydowns, versus the gross redemptions at $1 billion this quarter. So we are three times covered. That is before we talk about fundraising inflow or the DRIP, or liquidity at the BDC drawing on committed debt or cash on hand. Just level setting on all this: because of the anxiety around private credit—and we understand that—the industry is going through another period of softer inflows and higher redemptions. But periods of softness in certain asset classes are natural, and your question is exactly that. What is also natural is that sentiment tends to move to other asset classes, which as a diversified manager like ourselves, we are well positioned to benefit from. I talked last quarter—now shifting to those other capabilities. I talked last quarter in the Q&A session about some of the attributes for what it takes to be successful in the private wealth channels and how we go about expanding and continuing to grow in environments just like this. We have large, high-quality, and most importantly, well-performing products. We have a diversified suite of capabilities, as I just mentioned, which makes us really well suited to capture shifting sentiment like what we are seeing now. The track record of our non-direct lending capabilities supports exactly what I just said. Orent delivered an 11% return last year and is up 2.5% in 1Q. OwlCX, our interval fund—our alternative credit product—is 11% over its first year and up 2.2% in January. ODiT, which is newer—we just launched that at the end of last year—is up 2.3% in January. We have significant scale in these products. OwlCX is the smallest at about $2.5 billion of AUM. Not leaving off, of course, our nontraded BDCs; they continue to demonstrate strong performance. OCIC has delivered a 9.1% annualized return since inception, over about five years, which is meaningfully outperforming the leveraged loans market, high-yield bonds, and traditional fixed income. Strong returns, scale, and a diversified suite of products are what is needed to broaden to other channels and markets, new geographies. We have talked in the past about model portfolios, 401(k)s, the resources we have dedicated to private wealth globally, the new product origination capabilities, and deep focus on emerging trends and opportunities. We have scaled distribution across all channels. Our business is an industry leader in a market where there is massive opportunity and significant barriers to entry. This is not easy to build. Thank you, Bill. Operator: Your next question comes from Brennan Hawken with BMO Capital Markets. Your line is open. Brennan Hawken: Good morning. Thank you so much for taking the question. I had a couple questions on fee rates, both in credit and real estate. First in credit, excluding Part I—so excluding that noise—the underlying fee rate went up eight basis points quarter-over-quarter. I believe you had a solid fundraising in BOSE, and I think that is in that segment. Were there catch-ups in that, and maybe could you quantify that, or maybe some other onetime-type items or any noise? And then the real estate fee rate also looked better than expected. Was there any noise in that business as well? Thanks. Alan Jay Kirshenbaum: Of course. Thanks, Brennan. Appreciate the question. For credit, we did have some BOSE onetime catch-up fees. Overall, management fees were up a little, Part I fees were down a little. Management fees were driven by the BOSE onetime catch-ups, but also things like ASOP 9—I just mentioned that. The interval fund continues to grow, and so that is what I would point to for the fees in credit. There is always some mix shift when you look at fee rates quarter versus quarter. Nothing in particular that I can think of that I would flag for real assets. Operator: Your next question comes from Mike Brown of UBS. Your line is open. Michael Brown: Hey, good morning. Thanks for taking my question. Dry powder certainly represents an embedded growth opportunity here for you guys, and certainly positive that spreads are widening. How should we think about the timing and phasing of deployment here? And as you think about—just give us a quick update on April. How has activity been in the month of April? And then when we think about software and tech, are those areas that you will lean into—are opportunities attractive there—or is that an area that you will pull back from as you think about deployment? Thank you. Marc S. Lipschultz: Let me start with the latter, and then Alan can share a few comments on how to think about deployment of that $30 billion or so of dry powder. Let us talk about the ecosystem first. At the highest level, the overall M&A environment is fairly tepid right now. It is active, and therefore, our business is active. We are seeing a nice number of opportunities to invest in. Most importantly, we like what we are seeing, and we like them at higher spreads, and we like them in an environment like this to originate. These are the kinds of environments where we are perfectly happy to be in a position with a good amount of capital to deploy selectively and certainly happy to continue. This is, of course, the feature of the business: loans get paid back. They are getting paid back regularly. Alan just talked before about the many billions of dollars that have gotten paid back. When those come back in—and generally speaking, those are at lower spreads—and we put them back to work at higher spreads, that is a really good thing for our investors. That is the environment we are in in aggregate: a bit of that rotation out of some of the lower spread product into higher spread product. That is a good thing. In terms of activity, it is probably a little more about geopolitics overlaying the market than it is anything else. I would not claim to know when that air clears and when the M&A environment picks up steam as a result. Activity is perfectly healthy, and so we are going to continue to deploy at a steady pace in lending. Frankly, in other areas of the firm, we are seeing tremendous acceleration in deployment. You have seen this sort of pipeline in triple net lease and in data center digital infrastructure in particular; the pipelines are just so compelling, as are, fortunately, the risk-return. I think we all saw overnight the big tech announcements, and there were a couple consistent themes. There are some pretty good numbers, but most notably, just about every single company talked about increasing their CapEx even more. That just flows directly to our digital business and our triple net lease business. It does depend by area. In our GP stakes business, this is a good time for what is happening. We are seeing people return. Remember, there was a time when lots of people thought they were going to become public companies. There was a time when the M&A market was extremely active. That is not the current moment. That brings people back to, how do I continue to finance a great business? How do I continue to fund their growth? We should look at the credit market right now as the M&A market is fine, and we are going to be following, really, no particularly greater or lesser than the overall M&A market activity levels. I expect as the air clears in the world, we will see those accelerate again. There is certainly plenty of dry powder in the hands of private equity firms, as we all know. We are seeing a really robust pipeline, particularly in real assets, and accelerating engagement around GP stakes. I would say the path ahead looks pretty appealing as we look into the back half of the year. Alan, any comments on pacing? Alan Jay Kirshenbaum: Really well said. On pacing, I would think that what we saw in credit is a good environment, as Marc just said, to lean in selectively on the right opportunities. Markets are functioning well. On the other side, we were paid down on over $7 billion of loans across the credit platform, so hard to tell how that will play out any given quarter on a net basis. In real assets, we continue to see very strong deployment there—huge pipelines. You should expect us to continue to draw down on products like Net Lease 6. I mentioned that is fully committed. We think that will be fully drawn by this summer, so pacing is going well there. Marc commented on GP 6—we actually have six really interesting investments in the pipeline, five of which are new investments, one is an add-on—so we are really excited about that as well. Ann Dai: Thanks, Mike. Operator: Your next question comes from Glenn Schorr of Evercore ISI. Your line is open. Glenn Paul Schorr: Hi. Thanks a lot. And I do want to say thank you—slides 24 through 26 are great. Now, here is my question. If you looked at those statistics, you would not know anything is going on in the world—meaning those are all healthy stats of some portfolios. People are looking forward. The public markets crushed the equities in some of these underlying companies, wider spreads, and public BDCs trade at big discounts. I wonder if you could drill down a little bit more on the color of “nothing has changed on our watch list,” how you quantify that, and then most importantly, if you look at the tip of the spear, there is a software maturity wall coming in 2028 and 2029. In normal times, I think the current lender would be part of the process of refinancing, especially in private lending. Who is going to do that if the current lenders are in redemption mode, and what kind of conversations are you having? What is the equity investors’ behavior? What is that like right now? I thought that would be helpful insight to how we should all think about the go-forward. Thanks. Marc S. Lipschultz: Thank you very much, Glenn. On those additional credit stats, a couple of comments and then we will jump into the specifics. We are out talking to all our shareholders, who we work for. What we heard is: we want to understand. We are reading a lot of narrative; help us with the facts. We tend to try to be very data-driven in our business. This is additional disclosure that we hope helps people understand what we are seeing at a portfolio level, as you are observing, because headlines are pretty different from the underpinning facts in this context. We want to try to share as much as we can so people can see what we see, transparently, for the good and the bad. In this case, as you observe, there is a lot more to like than to dislike. With that said, let us look forward. We do not have a crystal ball, but a few things we can observe—and we will get to the software point specifically. More generally, we have seen no material negative developments in our portfolios in terms of amendments, in terms of PIK; in fact, PIK has been on the decline as a percentage of the portfolio, again contrary to what people might intuit. No material change in watch list, no material change in nonaccruals. Those are observable and important facts, and are probably a little different from what people tonally would suggest would be happening. That is a very healthy place to be, number one. Number two, things in our business have a lot of visibility, and things do not move fast—by which I mean that companies, as they are going from being very healthy—and our average portfolio company, remember, is still growing in the high single digits, revenue and EBITDA; these are growing businesses—to go on average from that and no material changes in those other gates, and they are gates, not just indicators. You do not go from “I am a healthy company” to “I have a tremendous problem.” We have huge visibility on that. That is why we have watch lists. That is why we have conversations about amendments and other topics. It is one of the great advantages of having tight documents and being in the private market. We have visibility on people going from one stage to the next. We can say with a lot of comfort that in the foreseeable future, portfolios are likely to remain very healthy. The further you go out, the more variables come in, which brings us to the software topic. None of us knows the future state of the world transformed by AI. The center of gravity of that conversation today is software, but it ripples across the whole economy. Here is what we can say: we are lenders. We are not equity owners. That is not a small distinction. We choose that position for a reason in our strategies. Our job is to be prepared, and that means doing great due diligence, good underwriting, good documentation, and importantly, being the senior capital where there is a lot of equity capital beneath us. In our tech portfolio, remember, some of the very largest companies are there. Average EBITDA, say, is $320 million. We all understand where the pressures can come from from AI, but you are starting at $320 million with companies that in many instances have equity checks from very sophisticated sponsors of billions and billions of dollars. We have maturities that are three to four years on average. I will come to your maturity wall question. Three to four years really says that today, by and large, the question at hand is really an equity question, not a debt question. Not a monolithic answer, but if you took a step back, you would probably logically conclude there is a set of companies that will be beneficiaries of AI and the agentification of the business. There will be a set of companies in the middle of that range that will probably be harmed in terms of profitability and growth, but that is far from mortal. That is all equity, both those categories. Then there will be some companies that get themselves in more substantial trouble. That is where our preparation and our work always comes to bear. This is not new. Credit is not intended, never expected, to be a flawless exercise. We have had defaults before. We will have defaults in the future. The key then becomes minimizing that number and then doing well in recoveries. We have gone back and studied all of the cases where we have had restructurings or material amendments driven by performance issues. The actual statistics are: our average principal recovery in those cases has been $0.80 on the dollar. When you incorporate that we actually had several coupons in on average in those instances as well, our actual recoveries in total on our problem situations have been 1.1x to 1.2x. Not suggesting that means you cannot have worse outcomes, and there could be some of those in the world of software—probably a good place to watch—but you are down to very much a subset of a subset of a subset, and our job will be to manage through that. As for the conversations: these have very, very large equity checks involved. That does not mean that some of them will not be handed over to the lenders. Some will. In all likelihood—and we experienced an analogous circumstance with COVID—good sponsors are going to look and say, let us take a $10 billion buyout. They may think it is worth $10–$12 billion. We may think it is worth $6 billion, and it has $3 billion of debt. In either case, you are now about someone’s several-billion-dollar equity check, and they are very likely to logically want to continue to sustain that. What does that mean, which brings us to your software wall question? Yes, there are a number of refinances that are going to have to take place. There will be different categories of software performance, which will be a lot clearer a few years from now than it is now, as to who fits in what category. When we get to that place, it is safe to say that, as today, we are working down our exposure to software given the level of uncertainty. We will all know a lot more in a few years. To cut to the chase, you are going to end up in a circumstance where you are going to need to see a lot of equity injected by private equity firms into these companies in order to continue forward, even when they have many billions of dollars of equity value that they understand they have. It is going to be working together with those sponsors. Most will work quite amicably. Some will be a little more challenging. Again, that is what we have done since the day we started. It happens to be in the software arena this time. It has been in other arenas before. Do not minimize it, but do not overstate it. We will come to a point where there will be a subset of companies that will be the more contentious ones, and then we will work our way through, and that is what leads to having some amount of loss rate, which is endemic to not just private credit. It is going to be in public credit. It is going to be in high-yield. It is going to be in equities. Last comment: we have all seen a lot of volatility, certainly a downward direction for sure in software equities. Year-over-year, the change in the software indices is actually quite modest, and yet here we are talking about things that are down in the 40% on average loan-to-value. There is a lot of spring and cushion, and our job is to be prepared and ready, and we are. Ann Dai: Thank you, Glenn. Operator: Your next question comes from Brian McKenna with Citizens. Your line is open. Brian J. Mckenna: First off, great to see the resiliency in results to start the year. Can you just remind us how much exposure you have in your direct lending funds to SpaceX? I know this is just one investment. I think it is important to understand how and where you invest and how these portfolios are structured. Can you just remind us how these gains ultimately help offset future credit losses across these portfolios? Alan Jay Kirshenbaum: Maybe I will take the last one first. If you go to slide 25, you can see net gains since inception for both OTF and OTIC, whereas you would normally expect some sort of modest annualized net loss rate since inception. Investments like that certainly contribute to what you see as an outlier—a net gain since inception—on our returns. Marc S. Lipschultz: Specifically at SpaceX, just as an example, we made about 10x our money on that investment. We have sold about half of it at a $1.25 trillion valuation, still holding about half of it. The reason I highlight that is not because, in the context of our funds, that is going to change the fundamental flight path, but as Alan said, those are the ways we, even when we do have—and we will have—some credit losses, can offset some of those losses. The other thing I would note is about our ecosystem. The reason we have that position is because we were one of the very earliest lenders to SpaceX. We made a loan to the company and had the privilege of getting to know them very well and then participating in ongoing conversations about other financing opportunities and ultimately, in this case, an equity investment. We have that elsewhere in our ecosystem. Part of being a one-stop shop and delivering capital solutions gives us a lot of ways to win on behalf of our LPs, and of course, when we win on behalf of our LPs, we win on behalf of our shareholders. Alan Jay Kirshenbaum: And create these very long-term partnerships with our borrowers and the sponsors. Brian J. Mckenna: Very helpful. Thank you. Operator: Your next question comes from Steven Chubak with Wolfe Research. Your line is open. Steven Joseph Chubak: Hi. Good morning, Marc and Alan, and thanks so much for taking my question. I wanted to ask on the FRE margin outlook. You delivered strong expansion in the first quarter, encouraging that you reaffirmed the 58% target. Amid the slowdown in retail fundraising, it would be helpful if you could frame some of the assumptions underpinning the FRE margin guidance and the levers that you could pull to hit the target if gross BDC flows remain subdued and redemptions stay elevated over the next couple of quarters. Alan Jay Kirshenbaum: Sure. Of course. Happy to do that, Steven. We have talked a little bit about this. We are very focused as a management team on showing progress on the FRE margin line. I noted in our prepared remarks, we remain very focused on disciplined expense management, and we continue to see that path to achieve the goal of 58.5% FRE margins for 2026. We certainly have comp and non-comp, right—G&A—and we have levers that we can pull across the board to make sure that, knowing we expect to continue to be in a softer environment in wealth, you saw strong institutional results. In an environment like this, you certainly saw good results out of our wealth products away from the nontraded BDCs. Even in our nontraded BDCs, you saw about $1 billion of inflows. Assuming that the environment remains soft for, let us say, the remainder of this year or the next number of quarters, we expect to continue to maintain that 58.5% FRE margin. Steven Joseph Chubak: Great color. Thanks for taking my question. Alan Jay Kirshenbaum: Of course. Thank you, Steven. Operator: Your next question comes from Patrick Davitt with Autonomous Research. Your line is open. Patrick Davitt: Hey. Good morning, everyone. Alan Jay Kirshenbaum: Hi, Patrick. Patrick Davitt: Kind of in the vein of Steven's question, last quarter you said you thought you could do low double-digit FRE growth this year. I would be curious to hear your thoughts on how that might have shifted given the now much lower flow outlook for the retail credit products. Thank you. Alan Jay Kirshenbaum: Of course, and it is a good question. We have talked about the challenging environment for the industry. We have talked about assuming this environment continues—for the industry and for us as well—there could be a wider range of outcomes for revenues. This ties right back to, keeping that in mind, remaining focused on disciplined expense management. When we look at something like the Visible Alpha consensus numbers for us, we think we can beat those numbers for 2026. Operator: Your next question comes from Wilma Burdis with Raymond James. Your line is open. Wilma Burdis: Hey. Good morning. You gave some good color on software earlier, but if you could give us a bit of a preview of what the software LTVs would look like today—sort of an update of those 2024 to 2026 slides. I know you touched on it. Public comps are down a little bit. You still expect the portfolio to remain healthy, but we would think the LTVs would come up a little bit. Alan Jay Kirshenbaum: Of course. Happy to. I will kick that one off, Wilma. What we have seen in the last few quarters leading up to this quarter is LTVs in the low forties for diversified lending and low thirties for software lending. What we saw this quarter is LTVs coming up across the portfolio into the low forties. We saw a move in software LTVs—obviously a lot happening with public marks over the last three months—and so LTVs came from low thirties to low forties, matching the diversified side, which still gives us a significant amount of cushion—about 60%—to the equity. Marc S. Lipschultz: A couple of additional observations on that. We do not mark our own credit books; we get the marks from a third party. When we take those marks and apply them, and then we look at LTV based on current facts and the current market environment—Alan just said this, but it is important to understand that indeed there has been deterioration in the value of software companies. We are a lender. That is reflected. Yes, we have come from low thirties to low forties by virtue of that deterioration. That is a tremendous amount of remaining cushion. Again, that is about preparation. That is about being in places with lots of underlying equity in the system. I would dare say that really speaks to the strength and durability of the underwriting and positioning. We are seeing—where we all acknowledge the challenges of software—and with those challenges understood and quantified as best they can be today, we have a lot of cushion in the system to continue to get strong returns and strong recoveries, and you continue to see strong loan repayments. Alan Jay Kirshenbaum: Thank you, Wilma. Thank you. Operator: Your next question comes from Kristen Love with Piper Sandler. Your line is open. Kristen Love: Thank you. Good morning. Appreciate you taking my questions. Can you discuss the fundraising outlook for 2026, maybe parse that between institutional and retail? Fundraising trends have remained solid looking at that top-down in recent quarters, and Alan, you did mention the first quarter seasonality, which I do appreciate. But looking at slide four, you did see softer private wealth year-on-year, which is not a surprise. How do you view the outlook differences between key investor channels and products as planned for the rest of the year, and then what that cadence could look like given seasonality in fundraising? Alan Jay Kirshenbaum: Of course, Kristen. Thank you for the question. We have talked about near-term softness in particular in the nontraded BDCs in wealth. I also mentioned earlier about having these other non-direct lending capabilities with very strong returns on a relative and absolute basis. We are very encouraged looking out over the horizon to see what we can continue to do with products like Orent. It has been the number one fundraiser in the market, the number one returns; it has been a very strong performer. The interval fund ODiT. Shifting to more institutionally—but not solely institutionally—we have more products and more strategies that cover more geographies than we ever have. We continue to see a lot of traction and success across a number of these products and strategies. To reference the two recently closed funds, GP-led secondary strategy, BOSE—we talked about that—closed at approximately $3 billion, and for a first-time fund, that is a great accomplishment. In alt credit, ASOP 9 also closed at approximately $3 billion. In both cases, we exceeded our fundraising goals. We have three real assets first-time funds in the market. Net Lease Europe, sitting around about $1.25 billion raised to date—original goal of $1–$1.5 billion—so we have already hit that goal and think there is a little more upside here. Products like real estate credit and data center credit—the goal has been to raise about $1 billion plus between the two of them in total—and we think we can exceed that goal this year. Focusing on our bigger flagship funds, wrapping up Net Lease 7—we are sitting at about $5.8 billion today; we mentioned in our prepared remarks, we think we will hit that hard cap of $7.5 billion by the end of this year. We are wrapping up GP Stakes 6—we are at about $9 billion in the fund, $10 billion with co-invest. We are going to close out fundraising here this year. Launching BODI 4—we have talked about that as well—our next digital infrastructure fund, setting up for our first close there in the back half of this year. This is a subset of the products and strategies that I am talking about. As a reminder, deploying our AUM not yet earning fees—that is $350 million of incremental annualized management fees that we would expect over the next twelve to eighteen, probably eighteen to twenty-four, months. Overall, we are continuing to see strong interest. We will see how the rest of the year plays out, but we are cautiously optimistic with many of these products and strategies. Taking a step back to close out, a number of these new products or strategies could be, in three, four, or five years, part of our series of big flagship funds for Blue Owl Capital Inc. We are really focused on how we start to generate more of these big flagships a number of years down the road, and we have a number out there that we think could absolutely fit that bill. Marc S. Lipschultz: Just adding briefly onto that, we have strategies that are built for all weather. They are built to be durable, predictable, generate current income, and provide good downside protection. The corollary to an uncertain environment is that really serves a strong purpose in people’s portfolios. I think we are seeing that appetite, particularly in the real assets arena, where we are really serving a very powerful need. For both institutions and individuals alike, the idea of how you participate in, I think it is now $700 billion of CapEx planned by the hyperscalers—how do you do that in a fashion that is also about predictability and stability? ODiT, our digital infrastructure product, is exactly the way people can access that opportunity set and work with companies like Amazon. We just announced a couple of weeks ago another Amazon project, a $12 billion project that we are doing. That is our fourth greater-than-$10 billion project in the last eighteen months, and these are under long-term contract to some of the very best credits in the world. It is a great opportunity and time, and both institutions and individuals alike are seeing that, and we have created pathways for them to participate. Orent has been a tremendously successful product, and continues to thrive. Our triple net lease business continues to turn in really strong returns. ORET, in fact, we actually just raised the dividend yield last quarter. There are a lot of ways to participate across our now ever more diverse platform, and we are seeing the benefits of that. Kristen Love: Great. Thank you, Marc, Alan. I appreciate all the color there across the platform. Alan Jay Kirshenbaum: Thank you. Operator: Your next question comes from Ken Worthington with JPMorgan. Your line is open. Kenneth Worthington: Hi. Good morning, and thanks for squeezing me in at the end here. What is the outlook for direct lending fee-paying AUM as we look out to the end of the year? Is it more likely to be higher, lower, or flat from where we are today given what you see as the deployment opportunities and your dialogue with investors? Alan Jay Kirshenbaum: It is a good question, Ken. Thank you for asking. I will answer two questions. Fee-paying AUM growth—as you saw, meaningful institutional dollars came through in 1Q—that typically will go into AUM not yet earning fees, and then as we deploy that capital over time, it shifts over to fee-paying AUM. I would expect, as we continue to see the successes we are seeing across our products and strategies, including credit, to continue to see fee-paying AUM grow as we go through the year—in particular for credit, but across Blue Owl Capital Inc. Kenneth Worthington: And any comment on direct lending specifically? Alan Jay Kirshenbaum: I would have the same comment for direct lending. Sorry, I was focused on direct lending; I was using the word credit. Everything I just said would echo for direct lending specifically. Kenneth Worthington: Okay. Great. Thank you very much. Ann Dai: Of course. Thanks, Ken. Operator: Your next question comes from Benjamin Budish with Barclays. Your line is open. Benjamin Elliot Budish: Hi, good morning, and thank you for taking the question. Maybe another one for Alan. If you can comment a little bit on how you are thinking about compensation—something investors tend to focus on a lot. I am curious if you have any thoughts that you could share around the trajectory of stock-based comp, how you are thinking about cash versus equity for employees, and how we should think about that from a modeling perspective. Thank you. Alan Jay Kirshenbaum: Sure. Of course, Ben, I appreciate the question. We gave guidance on this last quarter. The numbers will move around a little bit in any given quarter, but we are in line with our guidance for the stock-based comp “other” line. That is $365 million—my guidance from last quarter—which is about upper-teens growth. Keep in mind, as I mentioned last quarter as well, the business combination line also winds down to zero by the end of this year. Overall, we saw an increase this quarter in stock-based comp, but our guidance continues to be in line with what we are expecting for the rest of this year. On the acquisition-related, you are going to see that bump around in any given quarter. We use a combination, as we have talked about, of cash and stock for compensation. At the end of the day, from an overall expense perspective, of course, we point back to the FRE margin line—58.5%. But specifically for stock-based comp, we are very in line with our guidance of the $365 million last quarter. Benjamin Elliot Budish: Okay. Great. Thank you, Alan. Alan Jay Kirshenbaum: Of course. Thank you. Operator: Your next question comes from Alex Blostein with Goldman Sachs. Your line is open. Alexander Blostein: Hey, everybody. Good morning. Thank you for the question as well. Alan, I was hoping we could hit on the balance sheet—pretty meaningful increase in the revolver sequentially. I was hoping you can walk us through the sources there. More importantly, as you think about the dividend dynamic—obviously not fully covered here—but as you think about the forward, both on the dividend and how you guys are managing the debt level at the corporate level, that would be helpful. Alan Jay Kirshenbaum: Of course. Thanks, Alex. I appreciate the two questions, so let us hit both. On the balance sheet, 1Q always steps up, and by 4Q it comes back down. You can look back to last year—same path; the year before that—same path. We make our TRA payment; we pay bonuses in 1Q, and then you will see that come down each quarter as we get to April. On the dividend, we are committed to paying the dividend of $0.92 for 2026. Our business is growing—you have heard a lot about that today—and we are excited about that. We expect our payout ratio is coming down naturally. It is going to take a couple of steps, as we talked about in the past, to bring that payout ratio back to, call it, the 85% general target that we have over the course of the next few years. We are focused on the payout ratio. We are committed to the dividend. Our business is growing. We feel good about all of those aspects. Appreciate the question, Alex. Thank you. Operator: That is all the time we have for questions. I will turn the call to Marc Lipschultz for closing remarks. Alan Jay Kirshenbaum: I had one last quick follow-up, which was there was a question on catch-up fees in the credit business. It was about $7 million for our BOSE product. Ann Dai: Over to you, Marc. Thanks, Alan. Thank you all very much for the time. Marc S. Lipschultz: We appreciate the opportunity to have a detailed, fact-driven conversation. We are always available. We are going to keep sharing as much as we can share. We are quite optimistic overall about the forward path of the business and look forward to sharing that information with you as we go forward. Thanks so much. Have a great day. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good day, and welcome to the CNX Resources Corporation First Quarter 2026 Question and Answer Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to hand the call to Tyler Lewis, Senior Vice President of Finance and Treasurer. Please go ahead. Tyler Lewis: Thank you, and good morning, everybody. Welcome to CNX Resources Corporation's first quarter Q&A conference call. Today, we will be answering questions related to our first quarter results. This morning, we posted to our Investor Relations website an updated slide presentation and detailed first-quarter earnings release data such as quarterly E&P data, financial statements, and non-GAAP reconciliations, which can be found in a document titled "1Q 2026 Earnings Results and Supplemental Information of CNX Resources Corporation." Also, we posted to our Investor Relations website our prepared remarks for the quarter, which we hope everyone had a chance to read before the call, as the call today will be used exclusively for Q&A. With me today for Q&A are Alan Shepard, our President and Chief Executive Officer; Everett Good, our Chief Financial Officer; and Navneet Behl, our Chief Operating Officer. Please note that the company's remarks made during this call and answers to questions include forward-looking statements which are subject to various risks and uncertainties. These statements are not guarantees of future performance, and our actual results may differ materially as a result of many factors. A discussion of risks and uncertainties related to those factors in CNX Resources Corporation's business is contained in its filings with the Securities and Exchange Commission and in the release issued today. Thank you for joining us this morning, and operator, please open the call for Q&A at this time. Operator: We will now open the call for questions. Our first question comes from Leo Mariani of Roth. Please go ahead. Leo Mariani: Yes, hi, good morning. I was hoping to hear a little bit more about the Utica. I see you brought three wells on here in the first quarter. Any comments on well performance or costs? I know you have been working hard to continue to improve the play over time, so just wanted to see if there was an update there. Alan Shepard: Hey, Leo. Good question. We are continuing to develop the Utica program. The most recent pad was turned to sales late in the quarter, so we are a little ways off from providing any production results from that. Everything we have seen so far, as we have mentioned on previous calls, is very consistent with our expectation of the reservoir. We are continuing to make progress on the cost side, but nothing new to update at this time. The way to think about it is that toward the end of this year, we will be in a position to provide a more fulsome update. We will have a solid data set to provide to the market toward the end of 2026 or early 2027 once these wells have had enough duration on them. Leo Mariani: Okay. And would you envision that, as you develop a more robust data set, if the play continues to progress nicely, we could see a little bit more allocation to the Utica versus the Marcellus in the next handful of years? Or do you think that the Marcellus is still probably going to be a little bit economically superior based on current rates? Alan Shepard: I think the Marcellus has the advantage of having the infrastructure already in place. We optimize for the best economics per well, and right now, with the SWPA Marcellus, you generally do not need to build new infrastructure because of the legacy investments there. You will see us blend in more Utica over time as that is the longer-term position for the company, but in the SWPA Marcellus we are in harvest mode, and you will continue to see those wells for the next few years. Leo Mariani: Okay, that is helpful for sure. I just wanted to ask on your NewTech business. Any updates there on business lines other than the environmental credit monetization that you have been consistently doing? Specifically, anything on AutoSet or on the CNG or LNG businesses you have mentioned in the past? Alan Shepard: Everything is consistent with where we thought it would be at this point in 2026. We are still waiting for final guidance on 45Z, but we do not think that is going to impact any of the projections we have made so far. Nothing new to update there, Leo. Operator: The next question comes from Jacob Roberts of TPH. Please go ahead. Jacob Roberts: Good morning. On hedging, you typically transact on a longer-term basis than a lot of your peers. Given what seems to be the prevailing theory of an improving gas base in that 2028-plus timeframe, can you give some context on what you are seeing in the 2028 market? I think you added another 13 Bcf to the book with this update. Curious what you are seeing on that longer-dated market at the moment. Everett Good: Yes, again, on our longer-term hedges, we are in a position to be more opportunistic, with patience, than we have been in the past. As we see price move up, we have also seen basis differentials tighten, and that has helped us get to a better all-in realized price in the California market. We are targeting to bring that up over time as we approach that year. Jacob Roberts: Okay, perfect. I appreciate that. And then I know you made some changes to the balance sheet. Just curious what the next steps are from here on that front. Everett Good: Yes, we did a very positive refinancing of our 2029 notes into new eight-year notes at 5.875% in the quarter. Generally, we have been very consistent in pushing out maturities to make sure that we are at least two to three years out before our next maturity. The next one up for us is a 2030 maturity that we will handle well ahead of time. It is all about keeping the maturity profile extended and making sure that we do not have periods with large maturity towers in front of us. Jacob Roberts: Thanks. I appreciate the time. Operator: Thank you. Our next question will come from Michael Stephen Scialla of Stephens. Please go ahead. Michael Stephen Scialla: Hi, good morning. I wanted to ask about in-basin demand. Some of your competitors are becoming a lot more confident on that, talking about it growing by more than 10 Bcf per day by the end of the decade. Do you share that enthusiasm, and is there anything you can share that the company may be doing to capture some of that demand? Alan Shepard: I would agree that we certainly see the same long-term optimism on the demand side. Some of the announcements that have come out are mind-boggling when you think about a nine-gigawatt power center plan; there have been multiple of those proposed. We see the announcements, and we are monitoring as RFPs come out for gas supply and are participating in those. The magnitude of gas that will be demanded in-basin in Appalachia is going to need to be sourced by multiple producers. If you think about folks like us that have the resource depth and the creditworthiness to enter into long-term arrangements with these new demand sources, we will certainly benefit. The only question in my mind is timing: is it three years, five years, or seven years? Michael Stephen Scialla: Alan, do you see that developing more on the Ohio side? It looks like it is maybe ahead of Pennsylvania, and can you participate as much over there if that is the case? Alan Shepard: For an Appalachian producer, given the interconnectedness of the pipes, we are pretty agnostic to where it develops. You can wheel gas around between the states pretty easily. As a macro observation, Ohio has shown itself to be a little easier to do business with in terms of speed. It is a little bit flatter there for some of the data centers, and they have intersection points with the long-haul pipelines like Clarington that make it very attractive. Pennsylvania is also competitive—you have the Homer City plant and the NextEra projects; they are still working on site selection but have indicated the Mon Valley area, which is certainly in our footprint. Bigger picture, we are agnostic; we are excited about the growth in demand. And as Everett mentioned, you are starting to see differentials tighten up in the out years, and we hope that trend continues. Michael Stephen Scialla: Got it. I wanted to ask on your convertible notes. Can you say when during the quarter you expect that remaining $[inaudible] to convert? I am just trying to estimate the diluted share count for the second quarter. Everett Good: That maturity is on May 1. So those shares will be issued—approximately 12 million shares net issuance—later this week. Alan Shepard: And when we say net, that includes the effect of the cap call that we structured when we entered into the converts. So the 12 million is the net out the door. Michael Stephen Scialla: Great. Thank you. Appreciate it. Operator: This concludes our question and answer session. I would like to turn the call over to Tyler Lewis for any closing remarks. Tyler Lewis: Great. Thank you again for joining us this morning. Please feel free to reach out if anyone has any additional questions. Otherwise, we will look forward to speaking with everyone again next quarter. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the SCI First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to SCI management. Thank you, and over to you. Trey Bocage: Good morning. This is Trey Bocage, AVP of Treasury and Investor Relations. Welcome to our first quarter earnings call. We will have some prepared remarks about the quarter from Tom and Eric in just a minute. But before that, let me go over the safe harbor language. Any comments made by our management team that state our plans, beliefs, expectations or projections about the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statements. These risks and uncertainties include, but are not limited to, those factors identified in our earnings release and in our filings with the SEC that are available on our website. Today, we might also discuss certain non-GAAP financial measures. A reconciliation of these measures can be found in the tables at the end of our earnings release and on our website. With that out of the way, I will now turn the call over to Tom Ryan, Chairman and CEO. Thomas Ryan: Thanks, Trey. Good morning, everyone, and thank you for joining us. I'll start with an overview of our quarterly performance, followed by a deeper look at our funeral and cemetery results and then conclude with our outlook for the remainder of 2026. For the first quarter, we generated adjusted earnings per share of $0.97, which compared to $0.96 in the prior year. Cemetery revenue and gross profit increased meaningfully, supported by double-digit growth in preneed cemetery sales production. This performance was more than offset by lower funeral revenue and gross profit, driven by a mid-single-digit decline in case volume, resulting in a $0.02 reduction in earnings per share from operating income. Below the line, the favorable impact of a lower share count and a slightly lower effective tax rate was partially offset by higher interest expense, which when combined, resulted in an additional $0.03 of earnings per share growth. Despite a meaningful decline in funeral case volumes during the quarter, the company delivered strong underlying performance across several key operating metrics. Preneed funeral and cemetery sales grew exceptionally well, reflecting continued success in building long-term customer relationships and future revenue visibility. In addition, average revenue per funeral service increased meaningfully, demonstrating the strength of our offerings and disciplined pricing execution. At the same time, we maintained strong control over our cost structure, effectively managing controllable expenses, minimizing the impact on margins in a challenging volume environment. Importantly, had funeral case volumes been flat for the quarter, we estimate earnings per share would have been approximately $1.12, representing roughly 17% growth over the prior year quarter. Taken together, these results underscore the resilience of our business model and our ability to execute strategically despite near-term headwinds. Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenues decreased by $17 million or just less than 3% over the prior year quarter, mainly due to a decline in core funeral revenue. Comparable core funeral revenue declined by $18 million or just more than 3%, primarily due to a 6.6% decrease in core funeral services performed. The decline in services reflects the impact of a strong flu season in the prior year quarter and is consistent with broader first quarter mortality trends as indicated by data from the CDC as well as reporting from other industry participants. While we saw a notable decline in first quarter volumes, it's important to put that in historical context. Outside of the COVID-impacted era, over the past 20 years, we have experienced 5 instances where first quarter volumes declined from 4% to 9%. In each of those periods, we saw a meaningful improvement as the year progressed, with full year results improving by an average of 400 basis points relative to the first quarter's decline. While each year is different, this pattern reinforces our expectation that performance can improve as we move through the balance of the year. This unfavorable impact from funeral volume decline was partially offset by a healthy 3.5% growth in the core average revenue per service. This core average growth was achieved despite a modest increase of 40 basis points in the core cremation rate. Nonfuneral home revenue increased by $2 million, primarily due to a 10% increase in the average revenue per service. We expect this impressive growth in the average revenue per service to continue as older preneed contracts that are maturing out of our backlog have higher cumulative trust earnings and more recent preneed contracts written will mature with higher value in the backlog due to our operational decision to no longer deliver preneed merchandise at the time of sale. Funeral gross profit declined by approximately $23 million, with the gross profit percentage down 300 basis points to just over 21%. This is primarily driven by a $17 million decline in funeral revenues. We also saw a modest increase in selling compensation, consistent with higher preneed funeral sales production and a greater mix of insurance-funded contracts, which accelerates selling expense recognition. Importantly, more than offering and offsetting this variable cost increase, the team held fixed cost growth to just over 1% for the quarter, well below inflation, which helped moderate the negative impact on margins. As a result, margins landed in line with expectations based on an 80% incremental margin framework and roughly 3% inflation on fixed costs. Preneed funeral sales production increased by $18 million or about 6% over the first quarter of 2025. Core preneed funeral sales production increased by $13 million or 6% Nonfuneral home preneed sales production increased by over $5 million or 9% over the prior year quarter. We feel great about our momentum in both channels as we have worked through the initial challenges of the insurance partner transition in the core segment. And as of the end of 2025, we have now rolled the insurance product into 100% of our SCI Direct locations. Now shifting to cemetery. Comparable cemetery revenue increased by $31 million or about 7%, primarily due to higher core revenue complemented by an increase in other revenue. Core revenues increased by $25 million as a $28 million or 10% increase in recognized preneed revenue was slightly offset by a $3 million decline in at-need revenue. The recognized preneed revenue growth came from a $20 million increase in property revenue and another $8 million in higher merchandise and services. Other revenue was higher by $6 million compared to the prior year quarter, primarily from an increase in endowment care trust fund income. Comparable preneed cemetery sales production grew an impressive $32 million or 10% in the quarter. Large sales drove $20 million of that increase with core sales contributing the remaining $12 million, supported by continued strong underlying sales velocity. This performance reflects the strength of our sales organization, which continues to expand preneed production despite lower first quarter funeral volumes. Ongoing investment in sales force retention and growth, particularly in our community-based teams has broadened our reach beyond location-generated leads. Cemetery gross profit in the quarter grew by $15 million or 11% with margin expansion of 120 basis points to approximately 33%. The increase was driven by higher-margin trust income, which lifted overall profitability. This was partially offset by above-inflation growth in fixed cemetery maintenance costs. Even so, margins came in as expected, consistent with our 75% incremental margin framework and roughly 3% fixed cost inflation. Now let's shift to discussion about our outlook for 2026. As we look ahead, we are reaffirming our 2026 normalized earnings per share guidance range of $4.05 to $4.35. While the first quarter funeral volumes presented a near-term headwind, we expect the year-over-year rate of decline to moderate as the year progresses, resulting in a 1% to 3% decline for the year. When combined with strong momentum in preneed cemetery sales, average revenue per funeral and continued disciplined expense management, we are confident in our ability to deliver within our stated earnings range. In closing, we remain firmly focused on building long-term value for shareholders, growing revenue, leveraging the strength of our scale and allocating capital with discipline to the highest and best use. As we move into a period of meaningful demographic tailwinds, we are exceptionally well positioned to expand our reach, serve more families and deliver sustained growth over time. In closing, I'd like to recognize and thank our entire SCI team for their ongoing commitment to our customers, our communities and each other. Your dedication continues to be the foundation of our success. With that, I'll turn the call over to Eric. Eric Tanzberger: Thanks, Tom. Good morning, everybody. Thanks for joining us today. And as Tom just finished, I'm going to start that way and take a moment to really sincerely thank our more than 25,000 associates across the entire SCI network. We are truly grateful for all of your dedication and most importantly, the compassion that you have for our client families. And we are very proud of the positive impact you continue to make in all the communities that we serve at SCI. So today, I'm going to start by reviewing our cash flow results and capital investments for the quarter. Then I'm going to take -- make a few comments on corporate G&A and our trust returns, and I'll conclude with an update on our cash flow guidance for the full year of 2026 and then talk a little bit about the overall financial position. So during the quarter, we generated very impressive adjusted operating cash flow of $335 million. This, by the way, was in line with our expectations and was an improvement of just under $20 million or 6% over the prior year. So a little bit more color on that because some of this is timing. So adjusted operating cash flow was positively impacted by a $20 million source of working capital related to an additional payroll tax payment that was made in the first quarter of last year. So additionally, though, there were stronger preneed cash receipts and other working capital that provided an additional $7 million source. But partially offsetting these sources were lower adjusted operating income of $4 million and $4 million of higher cash interest, which is primarily due to higher average balances on our floating rate debt, partially offset by the lower floating rates. We believe this growth in adjusted operating cash flow despite the softer volumes that we reserved in the first quarter really highlights the resiliency of our cash flow at SCI. So shifting to capital investment. We invested $108 million of capital into our existing funeral homes and cemeteries and real estate -- business and real estate acquisitions and of course, construction of new operating locations. So I'm going to break that down a little bit for you. We invested $66 million of maintenance capital back into our current businesses. Included in this maintenance spend, we invested $41 million into new cemetery development projects, $20 million into our current funeral home and cemetery locations, which improves the overall customer experience and about $5 million into our digital strategy and some other corporate investments. We also invested $17 million of growth capital in the quarter towards the construction of new funeral homes as well as the purchase of some real estate for future new build and expansion opportunities. Turning specifically to acquisitions. We invested $24 million into business acquisitions in the quarter, adding locations in several states, including Texas, Massachusetts, Alabama and North Carolina. We are excited about these high-quality funeral homes and cemeteries that are now joining our company, and we're very happy to welcome all of those associates to the SCI family. We have seen continued momentum in April and remain optimistic about the acquisition pipeline and believe we are on pace to achieve our $75 million to $125 million acquisition investment target for 2026. So now let's move on to capital distributions, primarily to our shareholders. We returned $190 million of capital to shareholders in the quarter through $143 million of share repurchases and $47 million of dividends. We repurchased just under 2 million shares during the quarter at an average price of about $80 per share, bringing the number of shares outstanding at our company to just over 130 million shares at the end of March. So shifting gears now, let's talk about corporate G&A, which spend of about $44 million in the quarter was down $1 million over the prior year but higher than our quarterly guidance range. This is primarily a result of higher accruals related to our long-term incentive compensation plans, which, by the way, was driven by outperformance in total shareholder return versus our peer group. We expect that corporate G&A expense going forward will average around the $40 million to $42 million per quarter. But as a reminder, this rate could be impacted by timing of these accruals related to the short- and long-term compensation plans, just like you saw this quarter. And finally, before transitioning to our cash flow outlook, I wanted to update you on our trust fund returns. So as you saw in the release yesterday, we ended the quarter with a 0.7% decline in our combined trust fund returns. However, importantly, in the month of April, we observed a market recovery with an estimated 4% to 5% increase in our combined trust fund returns, which really gives us confidence to say bring us back in line with our full year expectation of about a 7% trust fund return for the full year. Now let's talk about our outlook as it relates to cash flow. So as we talked about in the press release, we are confirming our 2026 adjusted operating cash flow guidance range of $1.0 billion to $1.06 billion. And as I really mentioned to you in February, we anticipate full year cash taxes to be about $120 million at a normalized cash tax rate of around 15% to 16% as again, we are benefiting from an investment we made in renewable energy projects in the current year. As we look beyond 2026, we anticipate returning to a normalized cash tax rate of about 24% to 25%. That would be absent any additional tax planning strategies or any regulatory changes that we don't know about. From an effective tax rate perspective, consistent with the guidance that we've talked about before, we expect full year 2026's ETR to trend in the line with 2025 at 25% to 26%. So in closing, I'm now going to provide some commentary about our liquidity and financial position. We continue to benefit from a favorable and disciplined debt maturity profile, complemented by robust liquidity. We ended the quarter with liquidity of about $1.7 billion, consisting of approximately $260 million of cash on hand and approximately $1.45 billion available on our long-term bank credit facility. We ended the quarter with a leverage ratio of 3.68x net debt to EBITDA. This is very similar to where we ended last quarter and again, at the lower end of our long-term leverage target range of 3.5 to 4x. So in conclusion, our solid balance sheet, enhanced liquidity position, consistent and predictable cash flow stream continue to bolster our capital deployment program, giving us significant flexibility to invest opportunistically for the long-term benefit of SCI, our associates and our shareholders. So with that, operator, this really concludes my remarks and Tom's remarks. I'm going to pass it back to you, and then we'll go ahead and open the call up for questions. Operator: [Operator Instructions] We have the first question from the line of Parker Snure from Raymond James. Parker Snure: On the funeral volumes, it'd be great just to hear how volume growth progressed throughout the quarter in kind of January, February, March? And then what are you seeing in early April, early days in the second quarter? Thomas Ryan: Sure, Parker. This is Tom. Thanks for the question. What we saw was out of the gate, really all 3 months were down. I think January and February were a little steeper and March was slightly better, but still down. And what we're seeing, Parker, and it's not unlike when we study the 5 years before, what typically happens is the first quarter is the worst, the second quarter is still not great and you tend to start trending in the back half of the year and seeing that volume come back. That's what we've experienced in the previous 5 times. And I'd tell you right now in April, we're seeing the same thing. April is still down. It's not as bad as the first quarter, but we're still kind of facing a little bit of a headwind. And again, we, I think, anticipate that, that would get better throughout the quarter and really see -- maybe get to see some positive comps in the back half of the year. Parker Snure: Okay. And then in terms of the guidance range, I may have missed this. I know you said that you now expect comparable funeral volumes down 1% to 3%. But on the preneed cemetery side, I think that's going to be kind of helping to offset that. It was up 9.7% in the first quarter. But just how are you guys thinking about that throughout the course of the year? The comps do get a little bit tougher, but just how are you thinking about preneed cemetery production within the full year guidance now? Thomas Ryan: Yes. I think Parker, this time, it's always hard to tell through 3 months. We're very pleased with the first quarter. But we still -- if we talked about guidance before, remember, I think I told you to steer you towards the low to mid-single digits. I think with the first quarter in the bank, we feel pretty good about mid-single-digit growth for the year. 10% is high step in it. But we do still feel very good about our momentum. Jay has got the team really focused on KPIs in the 4 of those. One of the channels is large sales. One of them is headcount. And so what we're seeing today, and I touched upon it a little bit on the call, is that we're growing the headcount. Part of that is we're trying to retain more of our employees, and that's being successful and then hire new ones. And we believe we've got better leads. Our next KPI is our lead-to-sale ratio. And so that's really focused on the quality of leads and our ability to follow those up. And then the third bucket before large sales is seminars. We found that seminars are a way that we can educate the consumer, get in front of them. And so Jay really pushed the initiative to say, let's expand the number of seminars we're doing, and we're seeing great success with that. And those are the types of things where you're out in the community, you're not getting your leads to the funeral home. And that's why I think we can say we grew velocity in a quarter even though funeral volumes were down. And by the way, funeral volumes are a great lead source, but we're finding other ways to get out to the consumer and seeing real success there. So we feel great about the momentum. You're right, the comps get a little tougher as we go along the year, but still very confident that we can get to that mid-single-digit growth for the year. Parker Snure: Okay. Yes. No, that's great. And then if I can just squeeze in one last one, kind of more of a math question on EPS seasonality. So if I look at the first quarter, $0.97. And then if I just kind of look at the last couple of years, 2Q is down somewhere in the range of $0.08 to $0.10. So that would imply something like $0.88 in the second quarter. That gets you to $1.85 for the first half. And if I look at the last 3 years, the first half seasonality is somewhere around 50%, maybe just below that. So that would kind of imply something in the high $3 of EPS, maybe $3.70 to $3.90. So I guess the question is like what is different this year in terms of like the second half ramp than a normal year that kind of gives you confidence in getting to the guidance range? Thomas Ryan: Yes. I think the real difference is, of course, just this down volume. And so I'd say if you can get that volume back, you're going to shift quite a bit of profitability to the back half of the year. So in your instance, it would probably assume where you get into those low 3s that you keep the volume at down 6% for the year. We believe because history tells us, and we believe, again, that, that's going to trend back the other way. So you're just going to push some of that funeral profitability that was in the first half of the year to the back half of the year. And that's how we're looking at it. We're modeling a couple of different scenarios like we said, it's hard to be precise, but we think 1% to 3% is a fair estimate at this point in time. And obviously, at the end of the second quarter, we'll have better data to make that a little more finite for you. Operator: We have the next question from the line of Tomo Sano from JPMorgan. Tomohiko Sano: So regarding funeral volumes, I believe the main reasons for the decline in the first quarter was tough year-over-year comps due to last year's strong flu season. Was this trend seen across the entire industries? And do you believe it had any impact on SCI's market share? Thomas Ryan: Yes, Tomo, we do not think it's market share. We don't have a lot of public competitors, but we do talk to a lot of our friends in the private world, and we've got suppliers in different places. And so -- and then you add that with -- I've mentioned CDC data, we've got January and February, and they're kind of right on where we see -- some of our other competitors actually have worse comps. Some of our suppliers have worse comps. So we feel, number one, that it's not a market share issue, and therefore, we believe it will bounce back. And the other checks that -- my sanity checks that I use, Tomo, is typically, our SCI Direct business, I can't remember when we had down volumes in SCI Direct. It's always a leader, and we may be a drag in the core. The other thing is pre-need going at-need is typically a lot better than the walk-in business, what we call the pure at-need. And in both those checks, for the first time in a long time, SCI Direct has down volumes in low single digits, but down volumes. And again, that just tells me that this is real, this is a death rate thing. Hard to predict all the reasons why. But it is a tough comparison. We did have a bigger flu season last year. And history tells us it's going to work back. And I tried to point out on the call that if you just give us flat volume, this would have been a 17% earnings per share growth quarter. That's how good we performed in other metrics. Unfortunately, we didn't get the volume. So it wasn't 17%. But we're optimistic that we're ready for that. We're working hard, doing things to have better advantages in competing on the funeral side, competing on the sales side. So anyway, hopefully, that answers your question. Tomohiko Sano: Yes, it's very helpful. And just a follow-up on the -- in the face of declining volumes, what specific actions or initiatives were implemented at the field level to address these challenges in terms of the cost to control, the labor retentions and managing input costs, please? Thomas Ryan: Yes. So a lot of them are just in place. We -- I think I've spoken before that the field has the ability when volumes are down to manage labor costs. How many people we're bringing in, part-time help versus full-time help. And so they're really good at leveraging that model without us having to say anything. So a lot of that is built into the DNA, built into the systems that we utilize. And so they're very good at leveraging those costs, and we really don't have to say a thing. So I feel good about the team's ability to pivot. And when you get that volume back, it's going to be -- the incremental margins on these things are huge. And so I look out at the rest of the year and say when that comes, we're going to have some nice comps to go back against the prior year quarter. So that's predominantly it. Clearly, we'll talk about you can manage travel costs, you can do different things, but we're really focused on the long term in making sure that we've got high-quality service that we're taking care of our customers and taking care of our employees and the volumes have come. So that's our position. Operator: We have the next from the line of Scott Schneeberger from Oppenheimer. Scott Schneeberger: I have 2 preneed questions, one cemetery, one funeral. I'll start with cemetery. You guys outlined a bunch of initiatives, Tom, you did about what you're doing headcount and seminars, and it sounds like a lot of good progress on that front. So question -- a 2-part question. What's the sustainability of it? And then historically, you guys have provided what large sale contribution is and maybe what non-large sale contribution is in the quarter. Can you share a little bit about that in the first quarter and how you see that shaping up over the balance of the year as well? Thomas Ryan: Sure. So Scott, the -- if you start with the cemetery, I think I mentioned, we had $32 million of production growth. $20 million of which was year-over-year improvement in the large sales and again, defined as $100,000 sales or better. And then $12 million of it came from what we call the core business. And the preponderance of that was in velocity. So we didn't have -- I think our average revenue per contract was slightly up, but most of it came from velocity. So that's kind of the breakdown. I think if you're talking about large sales, I think we ended in like the low $40 million for the quarter, and that's a solid quarter for us, particularly with the new -- we used to use $80,000 as our limit, now it's $100,000 -- so that was a big win. But I think the bigger win, like I've said before, the large sales are going to come when they come. It's hard to -- sometimes they're going to push into a different quarter, sometimes not. But what I'm really pleased about is I think we've now had 4 or 5 quarters in a row where we've seen contract velocity increase. And I again put that back to what I mentioned before is Jay and the team focusing on the key metrics that are going to drive those contracts. And seminars is a key thing, headcount is a key thing and really pushing the lead sources outside of the funeral home to be able to grow even when you have challenging volume environment. The other thing I'll mention, and we talked about it earlier since you asked, the cremation cemetery strategy. I think we talked to you guys a while back that it's our belief based upon some studies and surveys that we did with consumers that there's a real lack of understanding of what we have to offer to the cremation consumer on the cemetery side. So we were good at the funeral side, but we weren't getting the point across, at least consistently. So we worked really hard, and we actually piloted 10 markets in the first quarter. And I would tell you that it was very successful. And again, it's only 10 markets, so I don't want to get overly excited, but it's really focusing on communicating with the consumer through advertising, through in-lobby presentations, different types of media and presentation materials. And what we're seeing was a real difference maker in those 10 markets versus what we saw in the other markets. So that's just on its beginning, and we're intending to roll out, I think, another 80 or so markets in July. So really, really happy about that, that we feel like that's a market that we haven't addressed as aggressively as we should have been, and we're on it now. So a lot of good momentum on the cemetery sales side and feel good about directionally where we're headed. Scott Schneeberger: Great. Appreciate that color. The second question, the funeral -- is funeral at preneed -- excuse me, funeral preneed. And just curious, I mean, this is not a 1-quarter dynamic. This has been ongoing, but you're delivering very strong preneed funeral growth in an environment where volumes in at-need funeral are challenged. So maybe there's a bit of overlap in what this answer is going to be, but how have you been doing that? Can you just speak to what's the strength behind the preneed funeral? Thomas Ryan: Yes. I think a couple of things. First and foremost, you're exactly right. I'm going to say the same thing, particularly the seminars. The seminars are put on in markets. They probably are not at one of our locations. They're probably at a restaurant, somewhere, a hotel. So the draw that you're getting for the attendees has nothing to do with your funeral home traffic. So over time, I think we're pushing more and more of these leads outside of our locations. And therefore, we're less sensitive to volumes as they walk through the door. So I think our focus on that particularly probably has driven a lot of it. The other thing that I wouldn't, not point out to you is we had a lot of change in our preneed funeral, right? We had a new partner in our insurance core business, and we had SCI Direct last year that was transitioning from a trust product to an insurance product. So just think of the forms, the explanation, the presentations. There's a lot of detail that goes into that, and it was a bit of a distraction over, call it, a 12- to 18-month period. And I think what I'm pointing out now is, hey, that's behind us. I mean, obviously, we'll get better and better at utilizing the new contracts, the new tools, the new payment plans. But we're really starting to see that stride take. And then again, I would point back to the lead sources are more outside the funeral home, and we're able to generate better leads, have better closing rates. And so some of the same things we talk about on the cemetery side. Operator: We have the next question from the line of Tobey Sommer from Truist. Tyler Barishaw: This is Tyler Barishaw on for Tobey. Just wanted to double-click on the cremation in the cemetery point you just made. When you think about maybe run rate when this is at full implementation, do you have a sense for how much this could contribute or margin opportunity maybe? Thomas Ryan: Yes. I think where it's going to show up is in the revenue growth and pretty high-margin products. We really don't -- and I hesitate to do that, Tyler, because like I said, 10 markets does not make an initiative. So feel free to ask me as we continue how successful it is. But I would just tell you, we're very excited because in each of these 10 markets, it exceeded the average of everybody else in some markets by quite a bit. And I think it's just -- it's an obvious -- we woke up one day and said, we're not -- we don't have a way to get in front of the consumer in a consistent way to educate them about it. And again, when we did this consumer survey research, it really was eye-opening to us, and we learned a lot about, hey, maybe we're focusing too much on funeral and burial, and we've got to have the tools and the resources to educate these consumers. So I don't have a number for you yet. I think it will just be a nice complementary growth to all the other things that we've got going, as I mentioned before, with lead sources and growing the sales force numbers. So a lot of good momentum. Tyler Barishaw: Makes sense. And then just thinking about the funeral segment, how should we think about margins for the year on a gross margin basis despite the funeral volume contraction? Thomas Ryan: Yes. I mean if you obviously, out of the gate, I think we talked before, if we got to flat funeral volume, we think we could grow margins, call it, 40 to 60 basis points going forward. And we talked about the sensitivity, right? So if you back into 80% gross margins on funerals lost, you can back into the number. So at this point, we'd be forecasting that margins are going to be slightly down for the year versus what we experienced in the prior year. Having said that, once again, comps are a weird thing. I like our comp first quarter of 2027, right? I mean I think we might have a pretty good one. So it is what it is. But I think for this year, you'd anticipate that our gross margin percentage will be slightly down as compared to the prior year number. And then go back to that, can we grow it at 40 to 60 bps? I think so. Give us flat to slightly up volume, and we'll do that. And if you give us a little bit more volume, it will be a lot more. Operator: We have the next question from the line of Joanna Gajuk from Bank of America. Joanna Gajuk: So I guess maybe just a follow-up on the cemetery because clearly, that's where the outperformance was. And I'm sorry if I missed it. So how are you kind of thinking about the full year now versus your prior expectations for growing low single to mid-single digits? And I guess, can you also break it up for us, if you can, expectations for the large versus core sales performance for the year? Thomas Ryan: Sure, Joanna. So I think on the cemetery, you're right, we guided to low to mid-single digit. I'd say based on the performance we saw in the first quarter, we're confident in saying it's mid-single digit. And that would be somewhere between 4% and call it, 7%, depending on how the year shakes out. That's kind of where our head is. Then if you go to -- when you think about the breakout, we obviously had quite a good comparison in the first quarter. It was an easier comp. If you go back to last year, we didn't have a great large sale quarter. So we beat it by quite a bit. But I think both -- we expect both channels to end up being nice growth trajectories. Obviously, we've got quite a great growth trajectory in the first quarter, and that's going to come down over time as we got tougher comps. But we still feel like we can grow both channels in the remaining 9 months on a year-over-year basis. And again, large sales are harder to predict because they come when they come. And sometimes they slip from June to July or they slip from September to October, and that's okay because eventually, we'll get them. So we feel good about both channels. And I think overall expected growth rate is in the mid-single digits. Operator: Does that answer your question, Joanna? Joanna Gajuk: So yes, I have a follow-up. Actually, I was talking about -- I was muted -- to things. So yes, I was asking, so with this growth now for the cemetery just more like mid-single digits, how should we think about your assumptions around the gross margin in that segment? It sounds like the funeral segment while with the volumes being down, the gross margin will be lower. So should we expect better, I guess, margin here given the kind of the elevated growth? Thomas Ryan: Yes. I mean if we get the growth rates we think, you probably should see gross margins grow anywhere from 60 to, call it, 100, 120 basis points for the year. If we can get 4% revenue growth on the cemetery, we can grow at about, call it, 50, 60 basis points. So if we end up in the 5 or 6, you see a little better. So we got 9 months to go. We'll see. But overall, we'd expect cemetery margins to go up for the year. And like I said, funeral to be slightly down. Joanna Gajuk: And if I may, last question on the capital deployment and specifically the acquisitions. So are you seeing sort of more interest, less interest, any competitive dynamics around multiples and such? And it sounds like you mentioned before that the volume decline, the funeral volume decline of Q1 was kind of [ real behavior ]. But I think if I read it right, you said something along the lines that some of your competitors are actually doing worse. So is it changing sort of your outlook in terms of consolidation opportunities? Eric Tanzberger: Joanna, this is Eric. I think we'll continue to be very excited about the pipeline. We have a lot in the pipeline right now. We closed about $25 million so far in the first quarter, a couple more in April as well. And it continues to build. It takes time to make sure that we have a win-win situation with the third, fourth, fifth generation families, but we continue to be excited about it, and I think it will be a good story the rest of the year. In terms of funeral volumes, we just have -- we have the CDC data like you do. We obviously have heard our vendors and other vendors and such. And it sounds like that maybe we're a little bit better than what some of the other figures that are out there, including the CDC, probably a little bit better in January and February, which is out there in the public realm. So that's all we're saying. It's clear to us that this is not a SCI market share issue during the first quarter. We've definitely seen it before. But ultimately, these volumes, I don't think short term like this is going to affect the M&A program to come full circle back to the original part of your question. It's a long-term process with long-term relationships. We'll continue to work those long-term relationships, and we feel pretty good about what's ahead of us in terms of the pipeline. Joanna Gajuk: Okay. Great. And if I may squeeze in a last one and sorry, going back to your outlook for the year. So just to make sure, right, you kind of talk about the funeral volumes worse, and I guess that comes with lower margins, but the cemetery better and then potentially, if this gets closer to like 6%, 7%, the gross profit margin would be even better. But your guidance range for your EPS is pretty wide. So is there something to be said about orienting us towards one end or the other of that range? Thomas Ryan: No, Joanna, I think, obviously, with funeral volumes the way they are, we didn't perform at a level we originally wanted to do. So it all kind of gets back to how much comes back in the back half of the year. And so we still feel comfortable about it. I think what you're saying is it is a large range. Right now, with the funeral volumes the way they are, you're probably more likely to be in the lower half of the range versus the higher, but we're not there yet because, again, if these volumes come back, if we continue the trends we're seeing in cemetery, we could push in the upper half of this, too. So that's why we left it where it is. We honestly have a couple of different -- a variety of models and some of which if we get some funeral volume back, we can do really well this year. If you don't, clearly, you're going to be on the lower end of that range. Joanna Gajuk: All right. So you're still standing by the -- by the range, right? Thomas Ryan: Standing by. Operator: We have the next question from the line of A.J. Rice from UBS. Albert Rice: Just a couple of things to tie it all up. Just you mentioned a couple -- been asked a couple of times about the large sales. I know you've got a lot of initiatives in the cemetery side, sales and marketing initiatives. Do you think that there are any of those that are particularly directed toward the large sales so that this level of performance might be a more sustainable thing? Or is it still going to be more quarter-to-quarter volatility depending on what comes in, in any given quarter? Thomas Ryan: Yes. I think, A.J., a couple of things to answer that. And overall, let me just say it's a positive. I think the large sale concept, we now have in a lot more areas of the country. So we really -- obviously, Rose Hills and some of the California parks in Vancouver, we've had large sales for a long time. Now we continue to, I think, build even more spectacular properties that are higher level. I think what we find is as we build bigger and better things, you're surprised by the people that will buy them. So the average ticket will go up. And that's one way to drive your sales and then the other is velocity. And one of the things we've done, particularly in the Asian communities and the Chinese and Vietnamese in particular, we take Qingming as an opportunity to present new inventory. I think we did Qingming in 3 markets, if you go back 10 years. And now, Jay, we probably do it in 30 markets across the country. So I do think there's a likelihood to have more consistency in these numbers. And so the only thing I caution, A.J., I think it's going to continue to grow. It's going to get better is you could have a quarter where it's down $10 million this quarter and then you're up $15 million next quarter. So I never get that excited about large sales. It's a little bit like Eric is talking about visibility on acquisitions. We know the pipeline. We know the discussions that are happening. When someone is going to spend $5 million, $10 million, Jay knows about it, and he's telling me about it. So we're talking about it. And these aren't sales that happen in a day. They've got attorneys involved. They've got -- I want to design a particular building. So we're seeing the customers that are out there interested in our creative inventory, interested in personalizing it. And so that's why we feel highly confident. We've got more inventory on the ground to sell, and we're getting better and better at it, and we're doing it in more and more places. It's not just in California and Vancouver anymore. We're getting those sales in Missouri and obviously, Florida, North Carolina, Tennessee, Nevada, obviously, Texas, too. So just seeing it in more locations, more pockets and excited about the future and the things that we can continue to do in stretching the imagination. And I'd love to have a $20 million private sale one day, right? I mean it sounds incredible, but it will happen. Somebody will get it. Albert Rice: Yes. Yes. And then I appreciate Eric's comments on the trust fund earnings, returns and that dipped in the first quarter, but has rebounded early in the second. Is there anything -- I know that, that volatility in the trust fund returns tends to take a lot longer to show up in the results. Is there anything you're trying to signal with respect to the impact it may have had on the first quarter or positioning us for the second quarter to think about that? Or are you just making note of the fact that it's been volatile? Eric Tanzberger: I mean more of the latter. It's a lot like predicting volume with what's going on in the world, A.J., right? I mean I think trust fund income will be somewhere between $300 million and $350 million, call it, $325 million at the midpoint. That's a pretty wide range for me to say 3 months into it, but that's the volatility that we all know that we have out there in the markets. But we're marking to market every month. So we're pushing stuff through every month. But the contracts have to mature out of that backlog that's mark-to-market is why it becomes a muted effect over a longer period of time. Albert Rice: Right. No, that makes sense. And then just an interesting comment you had, and I'm just wondering how much of an impact that's having? And is this just sort of an unusual thing in the quarter or not? You said that you had above inflation fixed cemetery maintenance cost. Sort of what's going on there? Was that just sort of a 1 quarter phenomenon? Or is there some level of incremental spend you're having to do on cemetery maintenance that's going to persist? Thomas Ryan: Well, I think we -- this is the category that's hardest. And again, it's very labor-intensive. You're talking about water, you're talking about fertilizers, you're talking about equipment. It's a big, big expense. Some of it's outsourced, some of it's in-sourced. And it just tends to be the one that's hardest to control. And also, I think it's a reflection of how does your park look. And for us, because we've got great cemetery sales, we've got all this high-end inventory, we're spending money to make it special. And so I'm not surprised by it. It's just sometimes we'll manage to say cemetery maintenance could be 3% to 4%. Well, if it comes in at 5%, it's a little bit over, right? So that's the kind of thing, A.J. I wouldn't expect it to trend down or anything like that. But I think we're getting better at controllable buckets of that cost to where it will look more like inflation that's in the marketplace versus slightly ahead. So it's -- we're getting there. Operator: We have the next question from the line of Parker Snure from Raymond James. Parker Snure: Yes. Just one more follow-up. Can you just remind us on the timing of Qingming and when that selling season kind of ends up flowing through your numbers? From my understanding, it's kind of late first quarter, early second quarter, but just how much was Qingming attributable to some of the preneed cemetery sales in the first quarter? And just kind of how do you expect that overall season to kind of play out? Eric Tanzberger: It's usually late March and early April, Parker. So it actually crosses over the quarter. And it depends on -- each market has events for the community, community-facing events, and it kind of depends on when they plan it, to be honest with you, and where the end of the month lands. I don't think this was any out of the ordinary of a prior year or anything like that. I don't think it was a huge larger piece or a much smaller piece in the first quarter of '26 than the first quarter of '25. So I think it's just kind of right on pace. Tom's comment was more about that's a great opportunity to lay out your new larger sales though and your plans for that, which we utilize a lot across some of our larger cemeteries. Operator: This concludes our question-and-answer session. I would now like to turn the conference over back to the SCI management for closing remarks. Thomas Ryan: Thank you, everybody, for the time today. We appreciate you. We look forward to talking to you with our second quarter results in July. Have a great week. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Antero Midstream Corporation First Quarter 2026 Earnings Call. At this time, participants are in a listen-only mode. A question and answer session will follow a formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Dan Katzenberg, Vice President of Investor Relations. Thank you. You may begin. Dan Katzenberg: Thank you for joining us for Antero Midstream Corporation's first quarter investor conference call. I will spend a few minutes going through the financial and operating highlights, and then we will open it up for Q&A. I would also like to direct you to the homepage of our website at anteromidstream.com, where we have provided a separate earnings call presentation that will be reviewed during today's call. Today's call may contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures. Joining me on the call today are Michael Kennedy, CEO and President of Antero Midstream Corporation; Justin Agnew, CFO of Antero Midstream Corporation; and Brendan E. Krueger, CFO of Antero. With that, I will turn the call over to Michael Kennedy. Michael Kennedy: Thanks, Dan. Good morning, everyone. I will start my comments on Slide three. The first quarter of 2026 was an exciting quarter for Antero Midstream Corporation as we continued to make progress on our strategic initiatives. We successfully navigated adverse winter weather conditions and delivered another quarter of EBITDA and free cash flow growth. In addition, we closed the company's largest acquisition to date in February, which was ahead of our initial expectations. These achievements highlight two of Antero Midstream Corporation's greatest strengths: a world-class asset base in the lowest-cost basin in North America and the hard work and dedication from our team. As we look ahead, recent geopolitical events and data center announcements highlight the significant demand growth for U.S. energy both domestic and abroad. Given this outlook, we are focused on enhancing connectivity within our operating areas, particularly in the dry gas area and the newly acquired assets, providing cost-effective integrated solutions for this demand growth. Our balance sheet, scale, and integrated planning with our investment-grade producer position us well to capitalize on these growth opportunities. Now let us move on to Slide four to highlight some of our 2026 growth projects. At the end of the first quarter, we commissioned our dry gas compression expansion depicted on the right-hand side of the page. This station utilized relocated and repurposed units to support our first dry gas Marcellus pad in over a decade. During the first quarter, we also commenced our initial water system integration efforts. This capital investment to connect Antero Midstream Corporation's water system to the acquired water system is on track to be completed by year-end and will allow AM to begin servicing completions on the acquired assets in 2027. Today, there are currently three rigs running on AM-dedicated acreage on the rich gas system, one in the dry gas system, and one on the acquired blended system. This balanced and consistent development program delivers low-cost volume growth and is expected to drive high-single-digit EBITDA growth for the foreseeable future. In summary, we are off to a great start in 2026 executing our capital-efficient growth plan. Beyond our base business, we continue to be active in opportunities to further extend and enhance that growth outlook to support the increasing demand for natural gas. With that, I will turn the call over to Justin. Justin Agnew: Thanks, Mike. I will start with our first quarter highlights on Slide five. During the first quarter, we took over operations of our newly acquired assets right in the middle of winter [inaudible]. As you can see from our results, we did not experience any outages during the storm, highlighting the benefit of integrated planning and communication between the upstream and midstream businesses. Adjusted EBITDA for the first quarter was $288 million, which was a 5% increase year-over-year, driven by an increase in gathering, compression, and processing volumes. During the quarter, we generated $192 million of free cash flow before dividends and $85 million of free cash flow after dividends, which was an 8% increase year-over-year. This cash flow was used to finance a portion of the acquisition and opportunistically repurchase shares on the open market. Importantly, even after a $1.1 billion acquisition and share repurchases, we exited the quarter with leverage in the low three-times range and over $800 million of liquidity. Looking ahead to the next few quarters, we expect an increase in capital expenditures as we take advantage of improved construction season conditions, in line with our full-year budget. In addition, we expect to see gradual EBITDA growth throughout the year driven by increasing gathering and freshwater delivery volumes. This cash flow profile results in declining leverage throughout the year towards 3.0 times at year-end 2026, in line with our long-term target. In summary, we continue to build on the growth and momentum from our organic investments and accretive acquisitions. These results place us on track to achieve our 2026 guidance, which remains unchanged, and position us well for capital-efficient growth over the next several years. With that, operator, we are ready to take questions. Operator: Thank you. We will now open the call for questions. At this time, we will conduct our question and answer session. Our first question comes from John Mackay with Goldman Sachs. Please state your question. John Mackay: Hey, guys. Thank you for the time. Maybe we will start on the in-basin demand side of things. There are a couple of projects floating around, a lot of eyeballs on Monarch, etcetera. I know you guys are saying it is kind of too early; you touched on this in the AR call as well. But do you mind framing up what you could see the opportunity set for AM looking like here, and if you want to use a generic kind of EBITDA per gigawatt or anything like that, just frame up how you are thinking about the AM side of things here? Michael Kennedy: We are not going to use a generic metric there, but AM is participating in all of those because the vast majority of these need some infrastructure—laterals off existing pipe that Brendan talked about, water infrastructure build-out from the existing infrastructure—and AM has a seat at the table in all those discussions. As I mentioned, we are the industrial builder of Northern West Virginia. We built all of this infrastructure. It has all been a greenfield expansion for us across gathering, compression, processing, and water as we built out the whole system here. So we are the builder of choice, and that is part of the attraction of what AR and AM bring. It is an integrated development between upstream and midstream. We have the resource, and we have the ability to build the infrastructure. John Mackay: Maybe just to clarify, any sense you could give on how long of a timeline would be needed to support a larger project? Michael Kennedy: We are mainly talking about everything in-state, so it would not be that long of a timeline. It would be our typical kind of high-pressure build in year one to two to three, not five years out. John Mackay: Great. And then second question for me: You mentioned the high-single-digit growth target. Could you frame that up a little bit around what that implies for AR's underlying growth? AR came out with a higher growth pace on the last quarter call. Just trying to figure out where that shakes out and then what the AM algorithm off that is. Thanks. Michael Kennedy: That is off the base business. You get to the high single digit just from integrating the water system in 2027, so just servicing AR from a water perspective gets you that high single digit. If AR actually does pursue three rigs and two completions crews and does not build DUCs and actually completes those, you would be in excess of that high-single-digit EBITDA growth in 2027 and 2028. John Mackay: I appreciate that. Thank you. Michael Kennedy: Thank you. Operator: Your next question comes from Ivan Scotto with UBS. Please state your question. Ivan Scotto: Hi, team. Thanks for taking the question. I wanted to ask for any additional color you have on how much capital is needed to fully integrate the acquired HG assets, and also how far along that process you think you are at this point? Michael Kennedy: I think it is $25 million, and we are probably halfway through. I mentioned that the water system, which we cemented in the first quarter, will be done by year-end. The gathering system, which was almost all already integrated, I think it was $5 million to connect that. So it is really around the water, and we are in the midst of it and should be completed by year-end. Ivan Scotto: Okay. Great. And then just looking forward, where do you feel most of your opportunity set is for incremental returns in the future? Michael Kennedy: I would say around these data center local power projects. Our base business delivers very high rates of return; it is in the high teens to 20% return on invested capital in the base, and we have that fully mapped out. We have built the whole backbone of the system—the whole water pipes and the large gathering system that we have—so the incremental returns will be building off of that and building off of our relationship with AR and our own ability to build industrial projects in Northern West Virginia. That is the next leg. The base is terrific, with high-single-digit EBITDA growth that we have had for quite some time and will continue going forward, but incremental growth and returns from that will be from these local demand projects. Operator: Thank you. There appear to be no additional requests for questions at this time. I will hand the floor back to our management team for closing remarks. Thank you. Dan Katzenberg: Thank you for joining us on today's earnings conference call. Feel free to reach out with any further questions. Have a good day. Operator: Thank you. That concludes today's call. All parties may disconnect.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the California Water Service Group first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I will now turn the conference over to James Lynch, Senior Vice President. You may begin. Thank you, Demi. James Lynch: Welcome everyone to our first quarter 2026 results call for California Water Service Group. With me today is Martin A. Kropelnicki, our chairman and CEO, and Greg Milleman, our vice president of rates and regulatory affairs. Replay dial-in information for the call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until 06/29/2026. As a reminder, before we begin, the company has a slide deck to accompany today’s earnings call. The slide deck was furnished with an 8-K and is also available on the company’s website at calwatergroup.com. Before looking at our first quarter 2026 results, I would like to cover forward-looking statements. During our call, we may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company’s current expectations. As a result, we strongly advise all current shareholders and interested parties to carefully read the company’s disclosures on risks and uncertainties found in our Form 10, Forms 10-Q, press releases, and other reports filed with the Securities and Exchange Commission. And now, I will turn the call over to Martin A. Kropelnicki. Martin A. Kropelnicki: Thanks, Jim. Good morning, everyone, and thank you for joining us this morning to review our first quarter 2026. There are six primary areas that we want to talk about today. The first one being, obviously, the quarter, and I would say Q1 results were in line with our expectations given the fact we had a delayed 2024 general rate case. To remind everyone, in March we did get a proposed decision and there is a comment period that follows that proposed decision, which is 30 days. Our comments were filed, and then yesterday we received what is called a revised proposed decision that I have asked Greg to talk about a little bit more in detail later in our discussion today. I will generally say that the revised proposed decision we are very happy with, and we are on the docket day for approval at the California Public Utilities Commission. In terms of the quarter, again, the delay of the rate case meant there were items we could not book because of the delay. But given where we are, results were in line with expectations. I think the highlight of the quarter is the fact that our infrastructure investment for the first quarter was up 17%, and we continue to make good progress on our PFAS treatment and cost recovery from the polluters who polluted the grounds and the waters that we treat. On the business development side, there are two areas. We are focused on the Nexus acquisition deal, as well as we filed our change of control in Texas to advance our purchasing of a minority interest in BVRT, which is the Texas partnership that we have been involved in for the last five years. Yesterday, at our Board of Directors meeting, our board declared a 325th consecutive quarterly dividend, and that follows, of course, the 59th annual dividend increase that we had in January. Additionally, as I mentioned on our year-end earnings call, we have officially kicked off our centennial year of operations, which means we have been going out to the regions that we operate doing employee and customer celebrations, which has gotten off to a very good start. I will talk a little bit more about that later today. Before I get into some of the details in these six subject areas, I am going to turn it over to Jim to go through the financial results. Jim, I am going to hand it off to you, please. James Lynch: Alright. Thanks, Marty. As Marty mentioned, the proposed decision on our California 2024 general rate case is expected later this afternoon. Having said that, our first quarter results do not include the impact of the revenue requirement or any of the other provisions included in the revised proposed decision. Recall that the company does have an interim rates memorandum account and that does authorize us to retroactively apply the decision back to January 1 once it is finalized. So we are not losing out on any of the potential benefit from the rate case for the time that decision has been delayed. In 2026, revenue was $214.6 million compared to $204 million in 2025. Net income for the quarter was $4 million, or $0.07 per diluted share, compared to the prior year first quarter of $13.3 million, or $0.22 per diluted share. Moving to slide six, you can see the impact of activity during the quarter. The primary earnings drivers were rate increases, which added $0.11 per diluted share, and accrued and unbilled revenue, which added $0.06 per diluted share. The accrued and unbilled revenue increase was due primarily to warm and dry weather during the last month of the quarter. The revenue increases were partially offset by an overall decrease in consumption for the quarter, increased depreciation and interest expense related to new capital investments, and an increase in the effective income tax rate due to a reduction in tax credits, which, when combined with other items, reduced EPS by about $0.32 per diluted share. Turning to slide seven, we continue to make significant investments in our water infrastructure to ensure the delivery of safe and reliable water. As Marty mentioned, our capital investments for the quarter were up 17.6% to $129.5 million. Our total planned capital investments for 2026 are $627 million, and this reflects the amounts included in the revised proposed 2024 California rate case decision. It also includes our estimated expenditures in the other states. The constructive impact our capital investment program is having on regulated rate base is presented on slide eight. If approved as requested, the 2024 California GRC and Infrastructure Improvement Plan, coupled with planned PFAS investments and capital investments in our utilities in the other states, would result in a compounded annual rate base growth of over 11%. Moving to slide nine, we continue to maintain a strong liquidity profile to execute our capital plan. We continue to pursue tuck-in M&A opportunities as we progress on the acquisitions of Nevada, Oregon, and VBRT. As of 03/31/2026, we had $58.1 million in unrestricted cash and $45.6 million in restricted cash, along with approximately $470 million available on our bank lines of credit. We maintain credit facilities totaling $600 million that are expandable to $800 million, with maturities that extend into March 2028. We also have over $340 million remaining on the shelf we filed in connection with our ATM program, after completing approximately $6.1 million of program sales during the first quarter. Importantly, both Group and Cal Water maintained strong credit ratings of A+ stable from S&P Global, underscoring the strength of our balance sheet. Turning to slide 10, we just declared our 325th consecutive quarterly dividend of $0.335 per share. We also announced our 2026 annual dividend of $1.34 per share. This is our 59th consecutive annual increase and is 8.1% higher than 2025. And with that, I will now turn the call over to Greg to discuss the revised proposed decision on our rate case. Greg Milleman: As Marty mentioned earlier, we received a revised proposed decision on our 2024 California general rate case yesterday, and a final decision is expected later today or shortly thereafter. The revised proposed decision provides clear visibility into revenue growth, including approximately $91 million in 2026, followed by $43 million in 2027, and $49 million in 2028. Importantly, it continues key regulatory mechanisms like the Monterey-style RAM, and authorizes cost balancing accounts such as our pension cost balancing account, health care cost balancing account, and a new general insurance liability balancing account, which help stabilize earnings despite variability in customer usage and certain operating costs. While decoupling was not included, the decision introduces a new sales reconciliation mechanism and an updated rate design that better support fixed cost recovery. Overall, we view the revised proposed decision as constructive and supportive of continued infrastructure investment and long-term earnings stability. And now Marty will take us through the remainder of the deck. Martin A. Kropelnicki: Thanks, Greg. Just echoing what I said early on, I am very happy with the PD that is going to the Commission today for approval. When it is approved, we will issue an appropriate press release and related 8-Ks with more of the details of what is included in that final decision. I think it is fair to say from Greg’s perspective managing our rates department and Jim’s perspective as our CFO, we are very happy with the outcome and look forward to getting the rate case wrapped up and moving on with our plans for 2026. Moving on to slide 12, just a quick update on where we are with our Nexus project. As you may recall, we announced that we reached an agreement with Nexus to acquire their Nevada and Oregon operations. We have continued to progress very well working with Nexus. They are a great company to work with. We did file our change of control applications with both the State of Oregon and the State of Nevada. The State of Nevada has a six-month statutory decision timeline. Oregon does not. We are hoping the two will stay on track around the same time, and we could drive to close these transactions as early as by the end of the year. In the interim, the subject matter experts continue to work very well together, and we are mapping their processes into our systems. I have also had the pleasure of visiting all the sites in Oregon and Nevada and am very happy to say I was very pleased with all the employees that I met with. They are very professional and very sound operators, as well as an outstanding management team. In addition, since we last talked, I have had meetings with all the commissioners in the State of Oregon as well as the commissioners in the State of Nevada and their staffs. Those meetings have all gone well. When we conclude this acquisition of the Nexus assets, essentially, it will give us almost 100 thousand connections outside of the State of California in total, which is about 20% of our total connections, again diversifying out of California and expanding our footprint on the West Coast. In addition, and I think this is significant and we do not talk a whole lot about it, for those of you that have been with us for a long time, if you remember in 2008 and 2009, we started talking more about water and the wastewater business and recycled water. Back then, we really had one to two wastewater treatment plants that we operated. When we get this deal closed with Nexus as well as BVRT final buyout of the minority interest, we will have over 24 wastewater plants that we will be operating in the western half of the U.S. I think that shows our diversification out of California into wastewater and water, which I believe will play a very important role for water in the western half of the United States. Looking at slide 13, on the BVRT slide, we did file the change of control application with the Texas Commission. That is on file with them. In addition, we added another 210 connections to our existing system. We are waiting for the Texas Commission there as well, and then we will close on the minority interest that still remains in GVRT, and then that will become a wholly owned subsidiary of Texas Water Service Company. Moving on to slide 14, we have started officially celebrating our centennial anniversary. I would encourage everyone to take a look at our annual report. Our corporate communications team headed by Shannon Dean did an outstanding job going through “then, now, and next,” which is the theme of the annual report. I am also very happy that we have had over 41 thousand people visit our centennial website, which has a lot of information about the company, the rich history of the company, and how we grew from the idea that started with three World War I veterans to being a multibillion-dollar company that we are today. If you are interested in that site, I encourage you to look at it at 100years.lwatergroup.com. In celebrating our 100-year anniversary, we have scheduled a number of events throughout the State of California that include both employees as well as local officials. We held our first one in Bakersfield. That was a big success. We will have another one in Southern California in June. The overall goal of the program in celebrating this at a regional level is it allows us to increase awareness of the company’s track record among our local communities and our public officials that we are allowed to serve. In addition to getting people together to celebrate our success, we also are getting a lot of proclamations and resolutions, for example, from the Speaker of the California State Assembly, the City of Visalia, the City of Chico Chamber of Commerce, the Central Valley Asian Chamber of Commerce, and the San Joaquin Hispanic Chamber of Commerce, and there is more to come. It is fun to be out there talking about 100 years of service and reflecting on where we started to where we are today. We will now open the call for questions. Yami, let us open it up for our Q&A, please, for the guests on the call. Operator: Thank you. You will need to press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of an Analyst with Baird. Your line is open. Analyst: Hey, good morning, Jim, Greg. Good morning, guys. Thank you so much for the time, and I appreciate all the information here. Two questions for me, maybe a PFAS question and then a balance sheet question. I will start with the EPA talking recently about microplastics and potentially regulating some other substances outside the initial PFAS guidelines. Do you have any early thoughts on this, and specifically, might these be treatable within your current plans, or would this require further capital investment beyond what you have already laid out? Martin A. Kropelnicki: Good question, David. Some of you have heard me talk about UCMR, which is the Unregulated Contaminant Monitoring Rule list that the EPA publishes, and they update that list every so many years. If you really want to see what is coming down the pipe—no pun intended—on water regulation, you want to monitor that UCMR list, and microplastics have shown up and evolved on that list. It is certainly a hotter topic at the EPA right now, and it is something that is in water supply. You will likely see regulations established and an MCL to make sure there are no microplastics in the water. There is more to come from the EPA on that. Obviously, they go through a scientific process and come up with standards. Those standards get handed off to the states, and the state Departments of Health are responsible for implementing those standards at the state level. I believe we will ultimately have a standard on microplastics. I do, and I think as a society we have gotten a lot better at not putting microplastics into the ground or into the ocean. I think that part of it is improving, but I do think at some point we will have a standard that will evolve that we will have to treat for. As part of that process, the EPA will also talk about the appropriate methods and techniques to treat water that has microplastics in it. I think it is uncertain right now whether or not the current treatment that we are putting in place for PFAS will be effective for microplastics, and that will depend largely on the EPA. Analyst: Super helpful, thank you. Maybe then just turning to balance sheet. I appreciate all the comments on liquidity and available credit, but could you talk a bit about how you are thinking about equity issuance and capital needs more broadly throughout the balance of the year? James Lynch: I think—we feel very confident that we will be successful in closing both BVRT and the NexSys acquisitions in Nevada and Oregon. That will be incremental to our normal cadence of debt and equity issuances. We will take a look at the timing on when we anticipate that is going to occur and determine the most efficient way to approach the capital markets to fund those transactions when the time comes. There are some interesting instruments out there relative to forwards that will allow us to time it closer to minimize any dilution that could occur in terms of the difference between the time we raise the equity and the time we actually close the transactions, so we will be looking into that. We believe when the transactions close, it would likely occur towards the end of the year, and that is when I would look to raise the capital for those. Otherwise, we would continue to rely on our ATM and our normal lines of credit taken out by longer-term debt as we work through our capital programs and fund our other capital needs. Once again, everyone— Martin A. Kropelnicki: Jim, if you do not mind me jumping in, Dave, it is probably worth mentioning too—as you recall, we have our PFAS program, which is fairly substantial, and we have a separate application before the Commission that we are waiting to hear on because that will add further pressure on Jim on the capital side. But the flip side is we have been very successful on the litigation side. Just last week, we received another $6.5 million gross from the polluters’ trusts that have been set up. We have recovered about $66.5 million in gross receipts in our recovery process going after polluters, which nets us just about $50 million. That $50 million will be a direct offset to our PFAS program and help keep those costs lower for our customers. So we are approaching 20–25% of those estimated PFAS costs being covered through our legal efforts, and our legal team continues to do a very good job leading our industry efforts at getting recovery on that. That will help a little bit. For some perspective, we initially anticipated two segments of the program: one is treatment and one is well replacement, with our objective to get the treatment in by 2028, and the well replacements will take longer. Of the total amount we plan to spend on PFAS, about $60 million is for the wells and the remainder is for treatment. Analyst: Super helpful detail. I appreciate it very much, and best of luck tonight with the meeting on the GRC. It has been a long road and I am excited to have it behind us. Thank you. James Lynch: Thank you. Appreciate it. Thanks, Davis. Operator: If you would like to ask a question, press star 1 on your telephone keypad. There are no further questions at this time. I will turn the call back over to Martin Kropelnicki, CEO, for closing remarks. Martin A. Kropelnicki: Thank you, Demi. Thanks, everyone, for joining us today. The big thing to watch for moving forward is what happens at the Commission today. We are hoping for approval, and we are very happy with the revised proposed decision that is on the docket for today. As we move into the second quarter, what are we going to be focused on? We have to implement the results of the rate case. While that sounds like an easy task, there is a lot involved in doing that. There is a retroactive piece that goes back to January 1 that Jim and his team will have to work on, and we will give a lot of clarity around that as we wrap up the quarter and have the appropriate disclosures in our financials for our second quarter 10-Q. In addition, there are thousands of table changes that have to take place on the billing cycle with the new tariffs. The rates team, working with our customer service team, the accounting team, and the IT team, will be making those tariff changes and doing the appropriate testing to make sure our tariffs are accurately being billed. Assuming an approval today, we anticipate starting billing the new tariffs on July 1 of this year. In addition, we are staying very focused on our M&A side and really the Nexus transaction and the BBRT transaction, answering the Commission’s questions on the change of control applications, as well as doing all the integration work and being ready to quickly close, integrating those assets onto our platform once approved by the appropriate commission. It is going to be a busy second quarter, and then throw in the 100-year celebrations on top of that. We have a lot going on, but the team remains laser-focused on the tasks at hand. The last thing I want to do before we hang up is note this is Greg Milleman’s last earnings call with us. If you know Greg, he is not a person that wants a lot of hoopla or fanfare, but I could not let the morning go without recognizing his contributions to California Water Service Group. We recruited Greg from Valencia Water in 2013, where Greg served as senior vice president of administration. Believe it or not, we are Greg’s third job out of college. He started off with Arthur Andersen, then went to Valencia Water, and then he joined us. We brought Greg in as a manager of special projects. We were very impressed with him when we met Greg and did not really have a spot for him, but we thought he was a quality hire, a senior hire from within the water industry. Within a year, he was promoted to the director of operations, helping the operations team focus on deploying capital more quickly and more efficiently and making sure that plant is getting into service as quickly as possible. In 2017, he was named the interim director of rates to help lead our rate case efforts. In 2019, he was named vice president of rates for California, and then in 2022, when Paul Townsley retired, he took the helm as our vice president of rates and regulatory affairs to lead our overall rate strategy for all of our operating companies. Greg has only been with us 13 years, and from a Cal Water standpoint, that is not a lot of time—we have many employees with 30 and 40 years of service with the company—but Greg’s impact on the company has been nothing short of amazing. If you look at our rate cases over the decade that he has been with us, we have done the best with our rate cases under his leadership and his team. I would be remiss if I did not take this opportunity to tell Greg thank you and to wish him and Jen all the best in retirement, and we look forward to keeping in touch as we do with all of our retirees. So, Greg, thank you, and with that, Demi, we will wrap it up, and we will see everyone next quarter. Thank you very much. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining, and you may now disconnect.
Operator: Good morning. My name is Matt, and I'll be your conference operator today. At this time, I would like to welcome everyone to the OneWater Marine Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Jack Ezzell, Chief Financial Officer and Chief Operating Officer. Jack, please go ahead. Jack Ezzell: Good morning, and welcome to OneWater Marine's Fiscal Second Quarter 2026 Earnings Conference Call. I am joined on the call today by Austin Singleton, Executive Chairman; and Anthony Aisquith, Chief Executive Officer. Before we begin, I'd like to remind you that certain statements made by management in this morning's conference call regarding OneWater Marine and its operations may be considered forward-looking statements under securities law and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors, many of which are beyond the company's control, which could cause actual results and events to differ materially from those described in the forward-looking statements. Factors that might affect future results are discussed in the company's earnings release, which can be found in the Investor Relations section on the company's website and in its filings with the SEC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. Please note that all comparisons of our second quarter 2026 results are made against second quarter 2025, unless otherwise noted. And with that, I'd like to turn the call over to Austin Singleton, who will begin with a few opening remarks. Austin? Philip Singleton: Thank you, Jack. Good morning, everyone, and thank you for joining us today to discuss our second quarter 2026 results, which reflect the challenging retail environment, a continued improvement in boat margins, portfolio optimization and a notable reduction in leverage. Revenue for the quarter declined 9% and same-store sales were down 8%, primarily due to event timing and portfolio changes. This year, the Palm Beach International Boat Show took place at the end of March, which shifted a meaningful amount of new boat sales into the June quarter. This timing shift accounted for approximately half of the decline in new boat sales during the quarter. Also during the quarter, we completed the sale of Ocean Bio-Chem as part of our broader portfolio optimization strategy, focused on core assets and long-term value creation. While we updated our guidance to reflect the impact of the sale in February, the absence of those revenues will create challenging year-over-year comparisons for the remainder of the year. Importantly, we continue to operate from a position of strength. Our inventory continues to be in the best condition it has been in years with a healthy mix and age profile, supported by disciplined production from our OEM partners. We remain focused on enhancing profitability and reducing balance sheet leverage. We are driving margin expansion with a more streamlined portfolio of brands and assets. This combined with our strong inventory positioning, contributed to a 110 basis point increase in gross margin. We also made meaningful progress in reducing debt, supported by proceeds from the Ocean Bio-Chem sale and strong operating cash flow, and we remain on track to achieve our leverage target later this year. Beyond positioning for a market recovery, the strategic actions we've taken are helping us build a more efficient, resilient business model. As we move into the core boating season, we are encouraged by customer engagement and remain focused on execution, selling boats, managing costs and positioning our business for long-term success. With that, I will turn it over to Anthony. Anthony Aisquith: Thanks, Austin, and good morning, everyone. The quarter reflected a continuation of trends we've been seeing in recent quarters. Industry retail demand remains pressured with SSI data indicating double-digit declines in the categories in which we compete. At OneWater, lower new boat volumes were partially offset by disciplined pricing and favorable mix in a slightly less promotional environment as evidenced by our higher gross margin. Our pre-owned business remained a bright spot with revenues increasing 5%, supported by improved availability. Across our dealers, premium categories and brands continue to perform better, which is encouraging considering our portfolio's strong skew towards luxury brands. Importantly, finance penetration remains within our target range with over 60% of our customers choosing to finance a portion of their purchase with us. This highlights the market is not cash only even in the current interest rate environment. Parts and service continued to provide stability for the business, while reported results were affected by the prior year contribution from Ocean Bio-Chem. The underlying business remains solid, supported by steady boating activity. Excluding OBCI, service parts and other sales increased for both the dealership and distribution segments. Finally, I'd like to highlight our inventory positioning, which remains a key differentiator. Dealership inventory is down 3% year-over-year and down 19% over the last 2 years. Beyond the reduction in dollars, our inventory mix and aging profile are well balanced, and we are in a position of strength as we move into the selling season. The boat show selling season was encouraging. boating activity is healthy, and we believe we have the right inventory to meet our customer demand and get people out on the water this summer. And with that, I'd like to turn the call over to Jack. Jack Ezzell: Thanks, Anthony. Revenue for the quarter was $442 million, down 9% year-over-year with same-store sales down 8%. New boat revenue decreased 12%, driven by a shift in the timing of the Palm Beach International Boat Show and lower unit volumes, partially offset by higher average unit price. Solid used boat activity supported a 5% increase in pre-owned boat revenue, driven by higher unit sales and average price. Service, Parts and Other revenue declined 11%, primarily due to contributions from Ocean Bio-Chem in the prior year period. As Anthony mentioned, excluding this impact, the underlying parts and service businesses increased year-over-year. Finance and Insurance income decreased in absolute dollars due to the reduction in new boat sales, but increased slightly as a percentage of total boat sales due to the improving interest rate environment. As a reminder, interest rate cuts enhanced unit economics for boats financed through OneWater. Second quarter gross profit decreased to $106 million compared to $110 million in the prior year period. Importantly to note that our gross profit margin expanded to 23.9%, an improvement of 110 basis points compared to the prior year. This margin expansion was driven by favorable mix shift, brand portfolio optimization and continued execution of our strategic priorities to enhance both gross profit. Selling, general and administrative expenses declined in the quarter by $2 million to $86 million compared to the prior year period. This reduction reflects the impacts of our prior cost reductions, our variable cost structure and ongoing expense management. The increase as a percentage of revenue was primarily driven by the lower revenue in the current period. Against the backdrop of global uncertainty and softer retail demand, we took additional steps to align our cost structure with current retail activity. Within SG&A alone, actions taken at the end of March, early April are expected to deliver approximately $6 million in annual savings. The net loss for the quarter was $13 million compared to a net loss of $375,000 in the prior year. The increase in net loss was primarily driven by lower sales, a $6 million noncash trade name impairment charge and the tax impacts associated with the OBCI disposition. Adjusted EBITDA was $16 million. Now turning to the balance sheet. We ended the quarter with $68 million of cash and total liquidity of approximately $73 million. Inventory was $551 million, down from $602 million in the prior year, reflecting disciplined inventory management and the sale of Ocean Bio-Chem. Long-term debt was $354 million and net debt-to-EBITDA improved sequentially and year-over-year to 4.1x. During the quarter, we repaid $57 million of debt, supported by the proceeds from the sale of Ocean Bio-Chem and strong operating cash flows. We remain on track to reduce leverage below 4x by the end of the fiscal year. Turning to our outlook. Year-to-date results have been largely consistent with our forecast for the first half of fiscal 2026. As a result, our expectations for the year remain unchanged from our February update following the closing of the Ocean Bio-Chem sale. We continue to anchor our outlook on expectations to industry will be flat to down low single digits year-over-year. When factoring the lost revenue from the exiting brands and the divestiture of OBCI, we expect dealership same-store sales to be flat year-over-year and total revenue to be in the range of $1.78 billion to $1.88 billion. We expect adjusted EBITDA to be in the range of $60 million to $80 million, and we expect adjusted earnings per diluted share to be in the range of $0.20 to $0.70. As we move through the core selling season, our focus remains on driving margin expansion, maintaining disciplined cost control and continue to reduce leverage. We are encouraged by the early season activity and customer engagement, and we anticipate that our more focused portfolio, strong inventory position and operational discipline will support our results through the balance of the year. This concludes our prepared remarks. Operator, will you please open the line for questions. Operator: [Operator Instructions] Your first question comes from Joe Altobello with Raymond James. Martin Mitela: This is Martin on for Joe. I first wanted to touch on same-store sales. Can we get a breakdown between units and price and get an impact from the exited brands? Jack Ezzell: Yes. I'd say the majority of it is led by price. Units were down in the mid- to upper single digits, seeing that shift to that kind of more affluent, higher ticket item. And probably, I'd say probably half of that number is driven by the shift in the Palm Beach Show and then maybe 1/4 is from the exiting brands. Martin Mitela: Great. And actually touching on that, the show. I think we calculated out $19 million in sales were pushed from 2Q because of that show timing. Is that -- are we expecting that to show up in the June quarter, all of it? Philip Singleton: Yes. Jack Ezzell: Yes. Go ahead. Philip Singleton: Well, I was just fixing to say when you start talking about the Palm Beach Boat Show, first thing you got to really talk about is how was that show and that show was fantastic. I mean, when you looked at the Palm Beach Show, by moving at those dates for some reason, it really spurred activity. I think we were up high double -- high teen digits both in unit and dollars for that show compared to last year. And the majority of that will fall into the next quarter. Now some of that stuff on the real big stuff might push out. But it definitely -- that timing is what impacted this quarter, and we're going to see the majority of that pick up. We're going to see a lot of it pick up in April. But it should -- most of it should filter in through the whole quarter, but there might be a couple that lag out into the next quarter. Martin Mitela: Got it. And I threw up the number, $19 million. Does that sound right to you? Or could you sort of calculate the... Jack Ezzell: No, it's a little high with respect to the sales that shifted, closer to $16 million, $17 million. Operator: [Operator Instructions] Your next question comes from the line of Greg Badishkanian with Wolfe Research. Scott Stringer: This is Scott Stringer on for Greg. I'm wondering how trends are in April and excluding the boat show. It seems like there's like a nice tailwind from the boat show there. Just wondering how trends are exiting the quarter here. Philip Singleton: Yes. I mean it's continuing on. I mean one of the things that's kind of given us comfort to maintain guidance with all the macro noise out there and what could be and all that stuff is just the door swings, the Internet leads, the amount of deals that flowed through in April. I mean April was a good month. We still are maintaining that trend of higher gross margin. And then the volume, excluding what swapped over from the boat show is trending in a nice direction. So we're still optimistic on what we're seeing from the day-to-day ground activity and what's happening as far as boat sales, we're just still a little nervous about what we're going to wake up and see on the TV and how that impacts consumer confidence over the next 60, 90, 120 days. I mean one day you wake up and everything seems fine in the next day you hear that gas is going to go to $47 a gallon. And so once that noise kind of simmers down a little bit, we could be on a pretty decent path to having a good year if we can get that noise to settle down because it's certainly trending in the right way right now. Scott Stringer: Got it. That actually leads to my next question. I was wondering about the impact of higher fuel prices on boat sales. Are you seeing any sort of impact there? Is that impacting one type of customer versus another? Just curious your thoughts. Philip Singleton: Well, I mean, I'm sure at some point in time, it's got to impact everybody, but the higher-end customers and the customers that we deal with don't seem to be impacted by the trend lines that we're dealing with right now. So you'd be an i*** to say that it doesn't impact it. Could it be better -- more -- a lot better than it is right now? Maybe. But it's still pretty damn good. And so we like that possible tailwind behind us when this stuff settles and what that could open up for us. If it's like it is right now with all the noise, how much better could it get? We just don't know. Operator: Your next question comes from the line of Kevin Condon with Baird. Kevin Condon: I think you noted some additional cost actions to help that SG&A line. Just wondering if you could add some color to what those actions are? And should we expect to see SG&A continue to track lower year-over-year in the coming quarters? Jack Ezzell: Yes, Kevin, that was the kind of the -- as we looked at how SSI has been trending, while there's -- it, I'll say, decelerated, right, because I think January's SSI was, I think, around 18 20, then February, March both got better. But just trying to get ahead of what's happening at retail, we did make some cuts, mostly in and around personnel, administrative and just some reorganizations within the company just to be a little bit leaner. So it's about a $6 million on an annualized basis. So we look to capture about half of that in the back half of the year. Some of that's coming out of dealerships, some of that's coming out of -- a big chunk is coming out of distribution as well. Kevin Condon: Got you. And then maybe to ask a follow-up. You talked about the inventory being in a good position. Just wondering what your stance on orders are going forward. Do you think you could potentially capture an uptick in demand should some of that noise settle like you referenced? Or would you need to meaningfully shift inventory or order levels to take advantage of any upside? Philip Singleton: Well, I mean, we're at the beginning of the selling season. And so we really don't have to make those decisions probably for another 90 days. And so we get to have a little bit better look at where we are. I think when you look at it from an industry perspective, inventory is way down in the industry. And so if we start to see going into the selling season, the trend that we're on now maintain, you start to see as you come into the fall, that maintaining again, then that means that you've got to start ordering more boats because the manufacturers just -- they can't go in and flip another light switch and all of a sudden produce 20% more boats. So the lead time is pretty important. I think we're still in a little bit of a wait-and-see mode, but it certainly feels better than it should with all the noise going on. So I would say that as we move through April and May, get into the end of that June quarter, if the trend line that we're on right now, we're going to be forced to order more boats for next year because the inventory is just going to get depleted. It's already at a point now where if you had any kind of felt an uptick, I'm not sure we have enough. And so you got to kind of get prepared for that. But it's a little bit too early for us to really call that because there's just, again, too much noise out there, and we just need to kind of get through the next 6 weeks, which are really the prime 6 weeks leading into the summer. Operator: There are no further questions at this time. We've reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to the First Quarter 2026 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press 11 on your touch-tone phone. I will now turn the call over to Guy Baber, vice president, investor relations. Sir, you may begin. Guy Baber: Thank you, Liz, and welcome everyone to our first quarter 2026 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, Ryan M. Lance, Andrew M. O’Brien, Nicholas G. Olds, and Kirk L. Johnson. Ryan M. Lance and Andrew M. O’Brien will kick off the call with opening remarks, after which the team will be available for your questions. For the Q&A, we will be taking one question per caller. A few quick reminders. First, along with today's release, we published supplemental financial materials and a slide presentation, which you can find on the Investor Relations website. Second, during this call, we will be making forward-looking statements based on current expectations. Actual results may differ due to factors noted in today's release and in our periodic SEC filings. We will make reference to some non-GAAP financial measures today. Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website. With that, I will turn the call over to Ryan. Ryan M. Lance: Thanks, Guy, and thank you to everyone for joining our first quarter 2026 earnings conference call. As we begin, I want to start by acknowledging the ongoing conflict in the Middle East. Our thoughts are first and foremost with our employees, our partners, and the broader communities directly affected by these events. The supply curtailment and ensuing macro volatility have not only impacted energy markets, but are also being felt across the global economy. Periods of volatility in our industry are inevitable, but this conflict reinforces the importance of both U.S. and global energy security. We certainly hope for a swift and diplomatic solution that resolves the conflict, protects U.S. interests, opens commerce, and provides stability in the region. Now turning to the first quarter results, we delivered another quarter of strong financial and operational performance. We generated $2.4 billion of free cash flow and returned $2 billion of capital to our shareholders. In the Lower 48, where we have the deepest and highest-quality inventory of any operator, we continue to improve our peer-leading capital efficiency, meaningfully increasing the number of three-mile-plus laterals in our program. In Alaska, we are winding down another successful winter construction season. The Willow project is now 50% complete. Our teams have completed the project's gravel scope, an important milestone, and mobilization for summer work is underway. We also recently completed our four-well exploration program in Alaska, the first in a multiyear program to leverage existing infrastructure to unlock additional low cost of supply resource. Consistent with our track record, it is still early days, but we are excited about the opportunity and the results and more low cost of supply resources coming to the Greater Willow area. As the broader industry recognizes Alaska's unique resource potential, we believe our longstanding position, legacy infrastructure investments, and technical expertise provide us with a meaningful competitive advantage. Turning to LNG, we recently executed a third-party tolling agreement in Equatorial Guinea, extending the life of the LNG facility well into the next decade. This is a strategically located asset in a gas-rich part of the world surrounded by discovered resource, which supports its long-term potential. Additionally, the Port Arthur LNG project continues to progress very well with first LNG expected next year. Turning to the outlook, while ongoing events have significantly tightened crude oil and LNG markets, the macro environment remains volatile and pretty impossible to predict. Amid such uncertainty, it is critical our priorities remain steadfast. They are clear, consistent, and durable. They have served us well for the last decade and will continue to guide us into the future. We will continue delivering base dividend growth competitive with the top quartile of the S&P 500. We will maintain and protect our investment-grade balance sheet. Recall last year, we were one of the only companies that delivered on our shareholder return objectives and strengthened the balance sheet. We will continue returning significant CFO to shareholders right off the top. We have averaged about 45% over the past decade through the cycles. And after meeting all these priorities, we will evaluate disciplined reinvestment for growth. In terms of how these priorities are translating to our 2026 plan, our expected CFO generation is up materially given our unhedged oil and LNG torque. Shareholders will directly share in this upside with our 45% of CFO return of capital objective. We have also added a modest amount of Permian activity over the second half of the year to maintain our operational efficiency into 2027. Long term, ConocoPhillips continues to offer a compelling value proposition that is differentiated in the market. We believe we have the highest-quality asset base in our peer space. As we have said before, we are resource rich in a world that is looking increasingly resource scarce. This is a distinguishing competitive advantage. We have the deepest and most capital-efficient Lower 48 inventory in the sector, and outside the Lower 48, we have an abundance of diversified low cost of supply legacy assets. And we are uniquely investing in our portfolio to drive peer-leading free cash flow growth. We are on track to deliver our previously announced $7 billion free cash flow inflection by 2029, driven by our cost reduction efforts, LNG projects, and Willow. With that, let me turn the call over to Andy to cover our first quarter performance and updated outlook in more detail. Andrew M. O’Brien: Thanks, Ryan. Starting with our first quarter performance, we produced 2.309 million barrels of oil equivalent per day. This includes the impacts of the Middle East conflict on Qatar volumes and higher royalty rates at Surmont from higher oil prices. These impacts were partially offset by strong performance across our Lower 48 and International portfolio. In the Lower 48, we produced 1.453 million barrels of oil equivalent per day, representing 4% year-over-year growth on an underlying basis. We generated $1.89 per share in adjusted earnings and $5.4 billion of CFO. Capital expenditures were $2.9 billion. We returned $2 billion to our shareholders during the first quarter: $1 billion in ordinary dividends and $1 billion of share repurchases. We ended the quarter with cash and short-term investments of $6.7 billion as well as $1.2 billion in liquid long-term investments. Turning to our outlook, we are updating our guidance to account for the impact of recent macro events and the uncertainty surrounding the Middle East conflict. To be clear, this is not a call on when we think the conflict will resolve. We are simply trying to provide a clear and transparent framework to model and assess the underlying performance of the company. For production, the midpoint of our annual guidance is updated to 2.31 million barrels of oil equivalent per day. This reflects a 20 thousand barrel of oil equivalent per day annual impact due to Qatar being excluded from second-quarter production guidance and a 15 thousand barrel of oil equivalent per day annual royalty rate adjustment at Surmont due to higher prices. We have made no other adjustments to our annual production guidance. The midpoint of our second-quarter production guidance is 2.2 million barrels of oil equivalent per day, which reflects the full exclusion of Qatar production from guidance for the quarter, the Surmont royalty rate adjustment, and planned second-quarter maintenance. Moving to operating costs, full-year guidance of $10.2 billion is unchanged, reflecting a $400 million reduction from 2025 due to the benefits of our cost reduction and margin enhancement program. We made strong progress in the first quarter and we remain confident in realizing the full $1 billion run rate by year end. For capital spending, we are updating our guidance to a range of $12 billion to $12.5 billion versus our prior guidance of about $12 billion, representing a 2% increase at the midpoint. This increase is due to slightly more Permian activity over the second half of the year; we are adding a rig to keep pace with the completion efficiencies, and we expect higher levels of non-operated spend. These modest activity additions maintain our operational continuity into 2027. Additionally, we are incorporating a guidance range to capture the uncertainty around the macro environment as well as the Middle East conflict, specifically as it pertains to timing for NFE and NFS spending. To wrap up, we delivered strong first quarter results. We executed well financially and operationally. We continue to advance our strategy and, amid a volatile macro environment, we remain committed to clear, consistent, and durable priorities that have served us well for the last decade. As Ryan mentioned, our expected CFO is up materially from the beginning of the year. We remain unhedged in oil and LNG to ensure we capture the price upside, with 40% of our crude production linked to premium markets such as ANS and Dated Brent. And shareholders are directly participating in this upside as we remain committed to returning 45% of our CFO, consistent with our long-term track record. Looking ahead, we remain focused on executing our plan and enhancing our differentiated investment thesis: unmatched portfolio quality, including leading Lower 48 inventory depth, attractive long-cycle investment, strong return on and off capital, and driving sector-leading free cash flow growth through the end of the decade. That concludes our prepared remarks. I will now turn it over to the operator to start the Q&A. Operator: Thank you. We will now begin the question-and-answer session. In the interest of time, we ask that you limit yourself to one question. If you have a question, please press 11 on your touch-tone phone. If you wish to be removed from the queue, please press 11 again. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press— Operator: Our first question comes from Scott Michael Hanold from RBC Capital Markets. Your line is now open. Scott Michael Hanold: Yes, good afternoon. Thank you. Hey, a lot happening, obviously, on the macro front. I know you all do a lot of work on the oil macro in addition to, obviously, having feelers out there. Can you give us a sense of your view of what has happened in the market, if you have any view of physical versus the financial kind of position of oil, and how you expect operators to act and react? It sounds like you are going to maintain operational efficiency, but it would be good to see if you have a view on what you are seeing and hearing from others. Ryan M. Lance: Thanks, Scott. Maybe I will let Andy talk a little bit about some of the numbers that we see out there, then I can come back and address some of your broader questions after that. Andrew M. O’Brien: Thanks, Ryan, and morning, Scott. I will start with, there are certainly a lot of moving pieces out there right now, and I will summarize our view of the world. I am not sure it is too different to others, but I think it is good to summarize it. For about two months now, we have had about 10 million barrels a day of production offline. That even factors in the redirected volumes in countries like Saudi Arabia. We have seen inventory and SPR releases that have partially backfilled some of that lost supply, and the ongoing SPR releases that have been announced will certainly help through the May–July timeframe. But I think it is really important for people to understand that the brunt of the supply shortfall is currently being absorbed by refinery run cuts and demand curtailments. Now, if you include the Persian Gulf refineries that have been damaged, the total global refinery run cuts right now probably amount to around 8 million barrels a day. As we look forward from here, we think the biggest challenge we are about to face is that the market had a bit of a grace period initially when the tankers that left the Persian Gulf in late February were still on the water. Now all of those have reached their destination, and the impacts of the lost supply are going to start to become more apparent. So we could possibly see, from here, inventory draws really start to accelerate. You have already seen that governments in over a dozen countries are implementing policies to ration or otherwise reduce demand in advance of physical shortages. Given those factors, we are downgrading our view of global oil demand to be flat year over year with probably a bit more risk to the downside if the conflict goes on. One final point I would make is, despite efforts that are ongoing to manage demand, we are going to start to see some import-dependent countries potentially start to face critical shortages as we get into the June–July timeframe. I will stop there and let Ryan add a bit more. Ryan M. Lance: Maybe, Scott, how are people acting? I think people are watching pretty closely to see what happens, maybe a little bit of short-cycle investments. I am sure that will come up in our call with the capital. We are just trying to maintain the efficiency gains that we have in the Lower 48, and we will not be drilled out of some of our OBO activity. We are trying to look longer term as well, as Andy said, assess the supply and the demand fundamentals. I think at a minimum the floor probably is going to have to raise up a little bit at least relative to where we were before the conflict started. Recall we had a mid-cycle WTI price of about $65, and we believe that floor is probably going to come up. We are trying to assess right now, given the demand dynamics and the supply dynamics, what long-term effect that is going to have on what we would call a mid-cycle equilibrium price and for how long that might persist. Recall, we were pretty constructive over the last few years before this got started. There was some uncertainty around how the physical and paper markets were reacting a little bit, and this has just accelerated a lot of that. But certainly, I think the floor probably has to come up to account for the changes that have occurred over the last couple of months. Operator: Our next question comes from Neil Singhvi Mehta from Goldman Sachs. Your line is now open. Neil Singhvi Mehta: Yes. Ryan, Andy, great comments there, and definitely, our thoughts are with your people in the region. I want to pivot over to Alaska. We went through winter construction season, and I would love a mark to market on how those plans progressed. Where do you stand in terms of Willow construction, and what are the big milestones as we continue to derisk this project and get to that free cash flow inflection? Kirk L. Johnson: Good morning, Neil. Thanks for the question. We have had a really strong showing here just in the last six months in Willow, so I will address a couple of things. We are 50% complete on the project, and achieving that requires a collection of key milestones that our teams have been able to accomplish. In this winter season in Alaska, we accomplished the entirety of our planned work scope, which admittedly was a little bit of a challenge. We had quite a few weather days, not dissimilar from our very first winter season, and despite that, the teams were able to accomplish the full winter scope. Most important to us as part of critical path was the civil work. We were able to get all of the bridges down and the entirety of the gravel scope—think roads, pads, and the airstrip. That sets us up for our ability to execute the summer work and, especially important with gravel, it allows you to dry and mature that gravel and create the compression necessary to continue the structural work that follows in the construction of future facilities and pipelines. As it relates to pipelines, important this year for us was the East–West scope, and that is important because it allows us to begin to make the connections back into the existing operations. By that I mean Western North Slope or Alpine. With those connections, within the coming week we will be bringing fuel gas in, and we will be firing up our power for Willow. We have been really successful in accomplishing the scope in Willow that we have laid out as we continue to commission the op center. With engineering largely wrapped up and complete, here in the Lower 48 on the Gulf Coast our process modules achieved a similar milestone—slightly better than 50% complete in fabrication. That is important because next summer we have plans to sealift those into Alaska, which becomes the next major milestone to get those processing modules up there. All of this in aggregate puts us in a very strong position for our early oil expectation in 2029, and all that is on track. That is important as it underpins the compelling value proposition of the $7 billion free cash flow inflection. Thinking beyond that is exploration. As you heard from Ryan, we had a strong showing here too. We speak a lot to the four wells that we had planned this year, which were successful for us, but this is the largest winter season in exploration that we have had since 2020. With that came the four wells, but we also shot seismic, and we also did quite a bit of gravel exploration and had a really high success ratio there on finding gravel for future pads. When we look at that exploration program, I am pleased to report we found hydrocarbons where we were exploring. Naturally, our subsurface teams are pouring over the results, seeking to ensure that we can characterize what we found. Commerciality typically comes with more than one season; that is why we call these exploration and appraisal wells and seasons. It will take several, but with what we found, we are really looking forward to the opportunity to keep Willow full. That underpins our objective to identify new resource and pad development opportunities to keep this infrastructure full. You have seen the track record from us in the past, and with the success we have been realizing just in the last six months, it has been a really strong showing from our Alaska team. Operator: Our next question comes from Betty Jiang from Barclays. Your line is now open. Betty Jiang: Hi. Good morning, guys. A lot of focus right now on the short-cycle response to higher oil prices and you guys being the first one out of the gate and leaning into activity in the Permian, which clearly makes sense for you given the deep inventory. Can we get a bit more color on the decision process from ConocoPhillips’ perspective to lean into Permian activity now? And alluding to your mid-cycle views earlier, what price would it take to flex activity further, and what will be the sensitivity on production outcome in 2027? Andrew M. O’Brien: Morning, Betty. Andy here. I covered in the prepared remarks that we have increased the midpoint of CapEx by $250 million, and it is important to describe why we are doing that. We keep having operational efficiency that Nick will talk to, and it is important, the way we think about steady state, that we keep that going. On the operated side, it really is just a continuation of our steady state given how efficient we are being. On the non-operated side, as I said in our prepared remarks, it is in anticipation and we are starting to see the early signs of some of our non-operated partners starting to ballot us for more wells. I would say the $250 million is more about operationally setting ourselves up and being thoughtful about our steady state and how we react to partners, versus a big macro call on price. With that, I will let Nick give a bit of the specifics on what we are doing. Nicholas G. Olds: Thanks, Andy. Good morning, Betty. As Andy mentioned, that $250 million of additional activity is concentrated in the Delaware, and that is a combination of operated and non-operated. On the operated side, we continue to drive significant efficiencies in both drilling and completions. Our completion efficiencies are slightly outpacing drilling, so we are adding another Permian rig versus prior plan to help us keep pace with our frac crews and maintain our level-loaded, steady-state operations approach that we have talked about for a number of years. The key item is that we do not want to have any frac gaps due to the efficiency improvement we are continuing to capture. If you recall, as we exited 2025, we had a 15% improvement in D&C operational efficiencies, and we continue to see those trends, with completions outpacing drilling. On the non-operated OBO side, we have started to see more well ballots from our partners, which will likely translate to a higher level of OBO spend over the second half of the year. We are not going to elect out of low cost of supply, high-return OBO projects in this price environment. We have seen it in the past. They are competitive projects, short cycle, with good returns. These additions are a modest capital add to our second-half program and will maintain our operational efficiency going into 2027. Ryan M. Lance: I would just add, Betty, these are no-brainers for us. We are not going to be drilled out of inventory by others, and we are going to keep our efficient machine running. These adds are weighted to the last half of the year, so they do not have a large impact on 2026, but they set us up for the continued growth that we are seeing in the Lower 48 in our portfolio year on year. You saw it in the first quarter; you will see it year on year, and that will continue into 2027. In the meantime, we will be assessing what we think mid-cycle price is going to do and what the new equilibrium might look like and then what that follow-on means to the cash flows that we generate as a company, the returns that we send back to our shareholder, and what we reinvest for growth and development in the company. That will be coming later this year as part of our normal processes. Operator: Our next question comes from Doug Leggate from Wolfe Research. Your line is now open. Doug Leggate: Thanks for taking my questions. Hi, everybody. I am looking at slide five, and those of us who have been around long enough, Ryan, remember what you went through in 2016 with the dividend. Now we are sitting here looking at low 70s. You are probably doing $10 billion of free cash flow according to your chart, and that has got 70% upside. My question is that you have stuck to the 45% cash flow payout. Your commitment is actually more than 30%. Clearly, there is a little bit of procyclical stuff going on with the share price. These windfalls can be capitalized in different ways, especially through your dividend policy. Can you walk us through, in these situations, why not flex down in the payout? Why not think more about the longer-term dividend, the breakeven, the balance sheet? I am curious where your head is at on buying your shares at the top of the cycle—it might not be the top, but it is certainly elevated for the time being. Ryan M. Lance: Thanks, Doug. We like to think about share repurchase as dollar-cost averaging. We tweak around the edges, which is why it was probably a little bit lower in the first quarter, but it was a good time to be buying in March and April. You will see us probably buying more in the second quarter. More fundamentally to your question, our 30% floor is set in a mid-cycle price construct that we start with for the company. We think about what mid-cycle prices are, what an equilibrium looks like. We know we are never in a perfect world, but we have to understand from a supply and demand perspective what cash flows we generate and what we can give back to the shareholder. Since we set that coming out of the downturn in 2014 and 2015, when we recast the value proposition for the company, it made sense. Actual prices have been higher than our mid-cycle call for most of that time, so we have been able to provide more than 30% back to the shareholder. Our history now, coming up on a decade through the cycles—even through the low point of the COVID pandemic in 2020 and the high point of 2022—is consistent. We think about it through-cycle. We try to set a mid-cycle price, and we are constantly trying to drive down the reinvestment rate in the company. We are trying to drive growth for as little capital as we can in the business, which is why Nick talks about what we are doing in the Lower 48 to drive efficiencies, and what Kirk is doing around the rest of the world and the opportunity we have in our legacy assets. We have been able to afford something higher than our base, and that represents the 45% commitment we have made for this year because we recognize the strength and power of the company. We do not want the dividend to get outsized as you referred to before—pre-2015, 2016—there are not many of us around anymore, Doug, maybe you and I. We want to make sure that we can sustain the dividend and grow the dividend at a competitive S&P 500 rate. Being able to continually, annually grow it is something we think is competitive with the S&P 500 top quartile; that is our commitment. At the same time, we want to make sure the dividend does not get an outsized portion of our cash flows at mid-cycle price, whatever we call mid-cycle. Typically, the dividend today is certainly affordable and growable, but it does not represent the full 45%, so we are augmenting that with share repurchases. We think that makes sense over the long haul; it reduces the absolute burden of the dividend going forward. It might have some procyclical nature to it a little bit, but we do not cling to it steadfast. We will ratchet up and down a little bit quarter to quarter to try to manage some of that, but we do want to make sure we hit the 45%, made up between the base dividend and whatever shares we are repurchasing in the market, and we try to take a pretty ratable effort to do that. Operator: Our next question comes from Francis Lloyd Byrne from Jefferies. Your line is now open. Francis Lloyd Byrne: Hey. Good morning, Ryan and team. Can we talk about OpEx a little? It continues to stand out. If you could just comment on the trajectory from here, and then is there anything other than maybe conservatism that keeps you from bringing the full-year guide down? Andrew M. O’Brien: Morning, Lloyd. We set our budget at $10.2 billion, which was $400 million lower than last year. As you point out, our 1Q results were very strong. We are really pleased with them. It is being driven by taking costs out faster than we originally premised from our cost reduction, both on the labor side and non-labor side with our lease operating costs. Q1 reinforces that we are very confident we will hit that $1 billion in run-rate savings by year end. To the heart of your question on guidance, it is only the first quarter. We are very pleased with how things have gone, but we would like a little more time before we revisit whether we would want to reduce guidance. Operator: Our next question comes from Devin McDermott from Morgan Stanley. Your line is now open. Devin McDermott: I wanted to ask on the LNG portfolio outside of the Middle East for a little bit of additional detail on the EG agreement you signed. More broadly, you have this big commercial portfolio of LNG offtake contracts, including 5 million tons off of Port Arthur. Can you give an update on where you stand in marketing and placing those commercial LNG volumes? I would imagine they have gotten more valuable with everything going on in the market right now. Andrew M. O’Brien: I can start with the second half of your question and then, specifically to Equatorial Guinea, I will let Kirk jump in. On our LNG strategy, we could not be more pleased with the progress we are making commercially. Even pre–Middle East events, we had a contrarian view versus consensus where we thought the market was more in balance versus a thesis of a bit of a glut. That is obviously gone now. Everyone is seeing the tightening market. We have a first-mover advantage; we have already put 10 million tons in place. Just like our E&P portfolio, low cost of supply—in LNG, low liquefaction costs—are important. We have that. We have already placed the first 5 million tons predominantly to Europe and a bit into Asia on Phase 1. As you can imagine, conversations about placing the rest are intensifying right now; interest in those volumes is high. This has reinforced the global security elements and the importance of having positions on the Gulf Coast and the value of that—right in line with our strategy. We would also be remiss not to mention the rest of our resource LNG business outside of commercial with APLNG and others, where those projects are priced off long-term contracts linked to Brent for the most part. They are also doing well in this environment. The LNG strategy is all proving out very nicely for us. Specific to Equatorial Guinea, I will let Kirk jump in. Kirk L. Johnson: Good morning, Devin. The EG LNG asset came to us through the Marathon acquisition with a strong reputation of performance. The question for us was longevity. The more we have come to understand the performance and capability of the asset and organization, we have been quite pleased. As described in the release, we struck a tolling agreement with a third party at EGLNG. Stepping back, our Equatorial Guinea asset includes the upstream Alba unit with offshore production facilities and, on Bioko Island near Malabo, our equity position in EGLNG. Our ability through EGLNG to strike this agreement allows us to further extend the life of EGLNG, run the facility at strong utilization, and push the life of that asset well into the 2030s. That gives us time, and you have seen press from us around HOAs we have been striking with the ministry in Equatorial Guinea looking at discovered resource. There are known gas opportunities in and around the island in Equatorial Guinea waters that we can begin pursuing to bring those to commercial opportunity and utilize the available capacity long term at EGLNG. It is an interesting asset—sales at EGLNG consist of both a long-term SPA as well as spot—and it is well positioned to take cargoes both north into Europe or around the Horn into Asia. We are pleased with how this asset is continuing to prove itself out. Operator: Our next question comes from Arun Jayaram from JPMorgan. Your line is now open. Arun Jayaram: Thanks for taking my question. I had a quick follow-up on LNG. Could you comment on how some of the Middle East disruptions are impacting your view of the LNG macro picture? And could you give us an update on the NFE and NFS projects given some of the disruptions in that part of the world? Andrew M. O’Brien: I can start with the macro and then Kirk can go into the specifics on NFE and NFS. From a macro perspective, for the two months that we have basically had Qatar production shut in terms of not going through the Strait, that is roughly 20% of global LNG not flowing. To put that into context, that equates to something like 200 cargoes that have not sailed—200 cargoes not delivered. Our view is that we have already seen a structural change where there will be LNG shortages for quite some time. Prices are likely to be quite constructive for a period as people bid up price to manage demand and supply. Qatar has publicly said there is damage to Ras Laffan that will take some time to get capacity back to market. Our in-house view is that we have essentially seen a structural change in LNG with all that has happened, and it will take a long time to get anything back close to where we used to be. I will let Kirk talk specifically about our position in NFE and NFS. Ryan M. Lance: I would add, Arun, we are watching gas inventories in Europe. Today they are well below where they should be given the build they should be experiencing. We are really concerned depending on when winter comes across Northern Europe and how hard that winter comes—will the gas be there? The inventories at this moment would put a blinky light on some of that going forward. Maybe Kirk can talk specifically about Qatar. Kirk L. Johnson: A few quick clarifying comments on how this is affecting us. Our single producing asset there in Qatar is QG3, and as a run rate that was roughly 80 thousand barrels of oil equivalent per day last year—roughly 3% of our total company production and similar on total CFO. The remainder of our global portfolio has been largely unaffected—really unaffected—by these recent events. It has been quite contained to this single asset. As you would expect, QatarEnergy executed a very controlled ramp down and ultimately largely a shutdown across most of their trains at Ras Laffan for both security and process integrity reasons, but also because with the Strait closed, there is limited capacity, if any, to lift cargoes. As QE disclosed, two trains were struck—those were not ours—and that took just under 12 mtpa off the market. QatarEnergy has been explicit that they expect that to impact the global market for upwards of three to five years. While it is easy to conflate the construction of NFE and NFS with operations, they are quite separate. We are pleased to see that, despite the conflict, construction on NFE and NFS has been progressing. Naturally, there have been some impacts and interruptions, but very different than operations. QE has disclosed that they expect delays; it is a bit premature to provide firm guidance on how that will manifest, but we expect the delay to be on the order of months. You will recall QE guided to second half of this year for startup, and it could be possible that extends into the early part of next year. We chose to remove Qatar from 2Q production guidance for clarity. We will be watching closely both construction and our own production there; it remains very conflict dependent. Hopefully that is helpful. Operator: Our next question comes from Bob Brackett from Bernstein Research. Your line is now open. Bob Brackett: Good afternoon. Apologies for a bit of an educational question, but there are a couple topics I am working on educating folks on and you may help. One is price realization 101, especially as it pertains to timing given the very sharp moves in crude price we have seen. The second would be a bit of 101 around the engineering of shut-ins—you have a 2020 track record of understanding that—shut-ins and the potential long-term impacts to production. I would appreciate that. Andrew M. O’Brien: Okay, Bob. I will start with the first part on pricing. From ConocoPhillips’ perspective, when you think about our portfolio, about 40% of our crude volume is linked to either Alaska or international price markers, conveniently split pretty equally between the two. International crude oil volumes are mainly linked to Dated Brent pricing. Everyone is now talking about Dated and ICE like we have not in a long time, and you are seeing how Dated Brent has been trading at a premium to ICE—the more physical to the paper. On ANS, for us, ANS is effectively priced off ICE Brent. So we have a fifty-fifty split between ANS-linked ICE Brent and international linked to Dated Brent—lots of Brent leverage. Specifically to your question around timing, you do see a bit of a lag in when you see cash versus earnings. You see it flow through earnings first, with a lag in timing of when the cash actually comes in, and that varies market to market for us. You start to see the cash more meaningfully come in about a month or so later. Hopefully that helps explain our exposure and the importance of whether we are on Dated versus ICE. I will take the opportunity to mention another point that sometimes gets lost. We also have a large Lower 48 component priced off WTI. We were really pleased with realizations on our WTI—about a 98% realization this quarter. That might get lost when you look at our total company realization when it all gets mixed together, because when you mix it all together you had three or four things happening: the WTI-to-Brent diff expanded to about $9 a barrel, and you have the timing of sales in places like Norway. It is a complicated set of moving parts, and there will be timing between cash and earnings that will take a month or two to line back up. Ryan M. Lance: On your second part, Bob, I assume you are talking about subsurface impacts to shut-ins. We do not have direct experience with a lot of the Middle Eastern assets like Saudi and UAE, but they are probably similar to what we have on the North Slope—very large, productive, high-porosity, high-permeability assets. We would not expect a whole lot of problem with them coming back; there will be a ramp-up period, but they should come back to pretty much full capacity, minus any surface constraints or issues created as a result of above-ground damage. In some of these, you have to ask if they are keeping the waterflood going while shutting in. If that is the case, they are probably building pressure and you probably get some flush production. Very high-level answer to your question, but I would not expect huge supply impact or subsurface damage as they bring these fields back on. Operator: Our next question comes from Josh Silverstein from UBS. Your line is now open. Josh Silverstein: Hi. Thanks, everyone. I wanted to get an M&A update from you, maybe more from a divestiture angle. You are very resource rich, as you mentioned, and you have an ongoing divestiture program. Are you seeing strengthening valuations for these non-core assets given the higher pricing? Does it make you want to be more aggressive in selling assets into this market? And maybe just an update on how you are thinking about the Port Arthur Phase 1 equity stake on the lead investor front. Andrew M. O’Brien: Morning. It is worth putting our announced $5 billion divestiture program in context. $3 billion is already behind us, so there is about $2 billion to go. I would put this very much in the “business as usual” category for us. We do have a data room open in the Permian right now with a couple of packages in there. Importantly, it is not one big thing; it is a collection of assets within the basin. These are assets we would consider non-core within the Permian—probably something we would not get to in 10 to 15 years given the depth of our inventory. Of course, we are seeing a lot of interest. Our track record will show we are not going to be schedule-driven. We will not sell anything without getting full value. We will go through a process and, if we get offers for full value for non-core assets that we are not going to develop for a while, we will certainly take a look, but it is very much around the edges and the usual portfolio cleanup work we always do. On Port Arthur Phase 1, we are in a perfect situation—we certainly do not need to sell anything. That asset is being derisked every day as it comes closer to first production, and we will have that asset online in 2027. Everything that has happened in the Middle East has reemphasized the importance of having these secure assets in our portfolio. Maybe a day will come in the future where we get an offer that fits an infrastructure-type investment, but we are under no need to sell that asset, and I cannot see why we would contemplate that while it is still under construction. We would rather get it online; maybe in the future it is non-core, but there is nothing there that we are not happy with. Operator: Our next question comes from Phillip Youngworth from BMO Capital Markets. Your line is now open. Phillip Youngworth: Thanks. Your Montney position has a lot of resource, and you have had better results than some of the offset operators up there. What is the appetite or value-creation opportunity to add to this liquids-rich position where others might not have the same technical understanding or operational capabilities? Separately, could Canada fit into the LNG offtake strategy if you were to target the high end of 10 to 15 mtpa? Kirk L. Johnson: Morning, Phillip. We continue to see strong performance from our Montney asset. We have been progressing this in a very disciplined and deliberate manner, and while we are out of the appraisal phase, we are admittedly still in early development—actively optimizing our plans and incorporating learnings that are unique to the basin as well as optimizations we can reap from our mature, distinguished position in the Lower 48. We have been running roughly one rig and expect to continue at a similar pace because, as we have experienced in the Lower 48, pairing strong drilling and completions crews yields strong performance across both. We like the performance because of the strong liquids—we are roughly 50% liquids with streams between NGLs, condensate, and crude—and we can take advantage within each of those liquids markets. It is a very competitive resource. Because we have a strong position and good performance, we are watching opportunities and the landscape. As it relates to M&A or BD, we will be smart; if we see an opportunity with a lot of synergies, we would naturally entertain that. On the gas side, because we are so dominant in liquids, gas is not a major driver for us, and we are naturally hedged to some degree because we use fuel gas and gas directly associated with Surmont and our oil sands operations. We are encouraged to hear plans for the next phase of LNG offtake coming out of Canada. We would like to see Canada bring more scope and scale at a better pace. Our growth plans are dependent on offtake; to get very aggressive in the Montney, with our own development plans or via acquisition, we will need to see a call on those barrels and that gas, and more offtake coming out of BC. This is something for us to watch carefully, and we would like to see more progress by those maturing those projects. Andrew M. O’Brien: Very directly from a commercial LNG perspective, we would be happy to have a bit more offtake on the West Coast. Just like our E&P portfolio, cost of supply—here, liquefaction fees—drives everything. If there are competitive liquefaction fees from expansions or new projects in Canada, we would certainly want to take a look, just like we look at offtake from many other locations. Having some West Coast offtake would not be a bad thing in our portfolio. Operator: Our next question comes from Analyst from Citi. Your line is now open. Analyst: Thank you very much. I wonder if I can get you to talk about the attractiveness of incremental capital in the Delaware versus refrac opportunities in the Eagle Ford. How would you compare and contrast those? Nicholas G. Olds: If you look at the Delaware and Eagle Ford, they are quite different. On refracs in the Eagle Ford, we typically do 50 or 60 in a year. You can execute one for about 60% of a development well’s cost and get roughly a 60% uplift on that original completion on your EUR. In that case, you are looking at mid-$30 cost of supply—upper $30s for refracs. In the Delaware, which is some of our lower cost of supply, you are executing currently in the low to mid-$30s. Overall, Delaware will have a stronger return than a refrac, but they are very close—we are talking probably $2 to $5 difference in cost of supply. Both are very competitive in the portfolio. Operator: Our last question comes from Kevin McCurdy from Pickering Energy Partners. Your line is now open. Kevin McCurdy: Hey. Good morning. Looking at the updated capital program this year, you addressed the Permian activity earlier, but on slide five of your deck you show some potential variance regarding the macro Middle East uncertainty. Can you expand on that a little bit? Would this just be deferred Middle East spending? Are there any other considerations represented in that chart? Andrew M. O’Brien: Predominantly, as Kirk and I covered earlier, it is really a range of uncertainty on what happens with NFE and NFS capital during the year. Nick and Ryan also covered we do not know exactly what will happen on the non-operated side in the Lower 48, but we are not going to put ourselves in a situation where, if we get balloted, we will not participate in low cost of supply projects. I would take it as general uncertainty in a very uncertain world right now. Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Good morning. My name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Provident Financial Services, Inc. First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. I would now like to turn the call over to Michael Perito, Head of Investor Relations. Please go ahead. Thank you. Michael Perito: Good morning, everyone, and thank you for joining us for our first quarter 2026 earnings call. Today’s presenters are President and CEO, Anthony J. Labozzetta, and Senior Executive Vice President and Chief Financial Officer, Thomas M. Lyons. Before beginning their review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today’s call. Our full disclaimer is contained in last evening’s earnings release which has been posted to the Investor Relations page on our website, provident.bank. Now I would like to hand it off to Anthony J. Labozzetta, who will offer his perspective on our first quarter. Anthony? Anthony J. Labozzetta: Thank you, Michael. And welcome, everyone. I appreciate you joining us today to discuss Provident Financial Services, Inc.’s first quarter 2026 results. I am pleased to report that we delivered another strong quarter of financial performance, demonstrating the continued momentum of our business and the effectiveness of our strategic initiatives. For the first quarter, we reported net earnings of $79 million, or $0.61 per share, representing solid profitability as we continue to execute our growth strategy. Our annualized return on average assets was 1.29%, while our adjusted return on average tangible common equity was 16.6%. Pretax pre-provision net revenue of $108 million, which grew 13.5% year over year, benefited from higher net interest income and notable growth in contingency income from our insurance platform, Provident Protection Plus. This represents 1.75% of average assets on an annualized basis, compared to 1.61% for the same quarter last year. We continue to focus on our balanced approach to sustaining growth across our business lines while also managing risk appropriately and generating sustainable positive operating leverage. Turning to our balance sheet, our commercial loan team generated new loan production of $649 million in the first quarter, up 8% compared to the same quarter last year. This production contributed to our commercial loan portfolio growth of $161 million, or 3.9% annualized. Commercial and industrial loan activity was particularly strong, growing at a 10% annualized rate. Commercial loan payoffs during the quarter were down significantly to $191 million, and overall, we remain positive about our loan growth guidance for 2026. Our commercial loan pipeline reached a record $3.1 billion as of March 31. This pipeline is well diversified and comprised of $1.3 billion in CRE, $1.1 billion in C&I, $400 million in specialty lending, and $200 million in middle market loans. This is the first time in our company’s history that both the CRE and C&I pipelines have exceeded $1 billion, reflecting the investments we have made in our commercial banking group to generate sustainable, diversified loan growth. Switching to deposits, our total nonmaturity core business and consumer deposits increased $66.5 million during the quarter, or 2.2% annualized. Seasonal municipal deposit outflows and an intentional reduction in brokered deposits during the quarter impacted our total deposit balances, which were down sequentially. Our average noninterest-bearing deposits were relatively stable, and we remain focused on deposit generation strategies to build core deposits in consumer, small business, and commercial verticals. While the overall deposit environment remains very competitive, our focus on relationship banking combined with our expanding digital capabilities and treasury management solutions positions us well to continue attracting quality deposit relationships that support our loan growth objectives. Provident Financial Services, Inc.’s commitment to managing credit risk and generating top quartile risk-adjusted returns remains unchanged. During the first quarter, we experienced net charge-offs of $3.1 million, representing just 6 basis points of average loans. Nonperforming loans increased to 73 basis points of total loans from 40 basis points in the fourth quarter, with the increase primarily attributable to a bankruptcy that impacted four related commercial loans totaling $82 million. I would like to provide additional context on this relationship. These loans have no prior charge-off history and require no reserve allocations due to strong collateral values. Appraisals received in 2026 reflect loan-to-value ratios for the collateral properties of 32.9%, 51.7%, 61.3%, and 81.9%, respectively. We are expecting resolution of these credits by year end. Based on the current cash flow and occupancy rates of the properties and our secured position, we do not foresee a material loss to the bank. Outside of this relationship, we would have seen improvements in all credit metrics during the first quarter, including levels of loan delinquencies, nonaccrual loans, and criticized and classified assets. Shifting to noninterest income, we are pleased with the performance during the quarter. Our Provident Protection Plus insurance platform, in particular, delivered exceptional results in the first quarter, with customer retention rates continuing at approximately 95% and significant year-over-year growth in both new business and contingency income. The strong contingency income we received this quarter reflects the quality of the relationships with our clients and carriers, and the effectiveness of our risk management approach. We are seeing increased collaboration among our insurance platform, the bank, and Beacon Trust, which is creating meaningful cross-sell opportunities and deepening client relationships across our organization. The pipeline in our insurance business remains strong heading into the remainder of 2026, and we continue to invest in talent and capabilities that will drive sustainable growth in this differentiated revenue stream. Beacon Trust remains focused on retaining and growing its customer base, and we are optimistic that the recent hires will help accelerate growth over the balance of 2026. Additionally, we have a strong pipeline for further SBA gain-on-sale over the remainder of the year. Our strong financial performance continues to build our capital position well beyond regulatory requirements. We delivered another quarter with significant year-over-year growth in earnings per share, profitability, and tangible book value, with our tangible common equity ratio ending the first quarter at 8.6%. During the quarter, we opportunistically took advantage of market volatility and bought back $12.4 million of our shares. Having said that, our top capital priority remains unchanged: driving sustained organic growth across our franchise while achieving top quartile risk-adjusted profitability. I am incredibly proud of both the efforts and production of our employees. I would now like to turn the call over to Thomas M. Lyons for his comments on our financial performance. Tom? Thomas M. Lyons: Thank you, Anthony, and good morning, everyone. As Anthony noted, our net income increased 24% versus 2025 to $79 million, or $0.61 per share, with a return on average assets of 1.29%. Adjusting for the amortization of intangibles, our core return on average tangible equity was 16.6%. Pretax, pre-provision earnings were $108 million, or an annualized 1.75% of average assets, a 13.5% increase from $95 million, or 1.61% of average assets, reported for 2025. Despite a lower day count, revenue topped $225 million for the second consecutive quarter, driven by net interest income of $194 million and record noninterest income of $31.5 million. Average earning assets increased by $264 million, or an annualized 4.7% versus the trailing quarter, with the average yield on assets decreasing 13 basis points to 5.53%. This reduction in asset yield was largely offset by a 12 basis point decrease in the cost of interest-bearing liabilities to 2.71%. Interest-bearing deposit costs fell 21 basis points versus the trailing quarter to 2.39%, while total deposit costs declined 16 basis points to 1.94%. While a reduction in net purchase accounting accretion attributable to lower loan payoffs resulted in a 4 basis point decrease in our reported net interest margin versus the trailing quarter, to 3.04%, our core net interest margin increased by 3 basis points to 3.04%. Given the macro developments since the start of the year, we are now modeling no further Federal Reserve rate actions for the remainder of 2026, versus three cuts in Fed funds in our initial modeling. As a result, we are slightly tightening our NIM outlook to 3.40% to 3.45%, inclusive of purchase accounting accretion. We also now expect approximately 3 basis points of core NIM expansion in the second quarter. Period-end loans held for investment increased $144 million, or an annualized 3% for the quarter, driven by growth in commercial, multifamily, and commercial mortgage loans, partially offset by reductions in mortgage warehouse, construction, and residential mortgage loans. Total commercial loans grew by an annualized 3.9% for the quarter. Our pull-through adjusted loan pipeline at quarter end was $1.9 billion. The pipeline rate of 6.24% is accretive relative to our current portfolio yield of 5.85%. Period-end deposits decreased $178 million for the quarter, or an annualized 3.8%. The decrease was driven by seasonal outflows of municipal deposits expected to return in subsequent quarters and a tactical decision to reduce brokered deposits in favor of lower-cost FHLB borrowings. More specifically, the pricing of brokered deposits was notably elevated in March, and we elected to utilize more borrowings at a cost savings of approximately 20 basis points, driving a more favorable impact to our net interest margin. Asset quality remains strong despite the increase in nonperforming loans that Anthony previously detailed, with nonperforming assets representing 58 basis points of total assets. Net charge-offs were $3.1 million, or an annualized 6 basis points of average loans. We recorded a net negative provision for credit losses of $2.1 million for the quarter, as required specific reserves on individually evaluated impaired credits declined, there was modest improvement in our CECL economic forecast, and changes in our portfolio mix warranted lower pooled reserves. This brought our allowance coverage ratio down 5 basis points from the trailing quarter, to 90 basis points of loans at March 31. Noninterest income increased to $31.5 million this quarter, with solid performance from our insurance and wealth management divisions, as well as increased BOLI claims and year-over-year increases in core banking fees and gain on SBA loan sales. Noninterest expense increased to $117.1 million this quarter, reflecting increased compensation and benefits costs and occupancy expense. Expenses to average assets and the efficiency ratio, however, both improved from the prior-year quarter to 1.95% and 52%, respectively. We now project quarterly core operating expenses of approximately $117 million to $119 million for the remainder of 2026, with the run rate in the second half of the year being higher than the first half. As we noted last quarter, in addition to normal expenses, we will be upgrading our core systems in 2026 and expect additional nonrecurring charges of approximately $5 million in connection with this investment, largely to be recognized in the third and fourth quarters. Our continued sound financial performance supported earning asset growth and again drove strong capital formation. Tangible book value per share increased $0.33, or 2.1% this quarter, to $16.03 per share, and our tangible common equity ratio increased to 8.55% from 8.48% last quarter. Common stock buybacks for the quarter totaled $12.4 million and 589 thousand shares, and we have 2.2 million shares remaining on our current authorization. We reaffirm our previous full-year 2026 guidance of 4% to 6% loan and deposit growth, noninterest income averaging $28.5 million per quarter, and core ROA targeted at 1.2% to 1.3%, with a mid-teens return on average tangible common equity. That concludes our prepared remarks. We will now open the call for questions. Operator: At this time, I would like to remind everyone if you would like to ask a question, please press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Your first question will come from Feddie Justin Strickland with Hovde Group. Feddie Justin Strickland: Hey, good morning. Just wanted to start on credit and the senior housing facilities. It seems like you do not really expect material losses there, but can you speak any more to the collateral, location, and the types of senior housing facilities these were or are? Thomas M. Lyons: Yes. They consist of independent living, assisted living, and memory care—no skilled nursing—and minimal exposure to Medicaid. There is strong demand for the properties, which is one of the reasons why we expect to see minimal loss as the bankruptcy gets resolved, in fairly short order, we think. As to location, East Coast. Properties range from $15.1 million to, for our share, $31.8 million as the highest loan amount. LTVs, as we disclosed in the release, go from 51.7% to 81.9%. Probably noteworthy is the highest LTV is actually on the lowest loan amount—that is the $15.1 million credit. More specifically, the properties are in New Jersey, Connecticut, Maryland, and Florida. Regarding fees, I think it is just an acknowledgment of some of the volatility in some of those line items; a piece of that was BOLI income. We do expect to see some seasonality in the insurance business, but we are anticipating continued improvement in the wealth management revenues as well over the course of the year to offset some of that to a degree. On SBA, that will be lumpy as well depending on production and where the gain-on-sale margins are at any point in time, so there may be a little bit of conservatism in that $28.5 million average. On loan accretion, there was a significant reduction in payoffs this quarter, which we actually like to retain the asset. If we are looking for 3 basis points of core margin expansion to roughly 3.07%, we are still anticipating a margin in the 3.40% to 3.45% range for the balance of the year, the difference being purchase accounting accretion. Operator: Your next question will come from Timothy Jeffrey Switzer with KBW. Timothy Jeffrey Switzer: Hey, good morning. Thanks for taking my questions. Really quick follow-up on your comments on the NIM. Can you talk about maybe how a Fed rate cut would impact, not necessarily 2026 numbers, but perhaps 2027? Is it accretive to earnings going forward if we get one or two cuts? And then on your loan backlog reprice, I know you have a good amount of loans over the next year or so. Can you update us on how much there is and what the gap is on new yields versus old? And lastly, could you walk us through some of the benefits and new capabilities the core upgrade from FIS will bring you, and whether there are any new products it will enable? Thomas M. Lyons: It is, Tim. I think consistent with last quarter when we talked, each cut is about 2 to 3 basis points of benefit to us on the current balance sheet. On the loan backlog reprice, the loan pipeline is just under 6.25%, and we still have loans coming off in the mid-5s, so there is some pickup. We have isolated that benefit to the NIM to be about 2 to 3 basis points over the 12-month period. It is about $5 billion in the total loan portfolio subject to repricing, but only roughly 60% of that we get a benefit from because about 40% relates to Lakeland-related portfolio dynamics affecting repricing. Anthony J. Labozzetta: So, Tim, to add a bit more color, the loan pipeline is at about just under a 6.25% rate. We can get you the exact dollar amounts offline, but the general impact to margin is the 2 to 3 basis points Tom mentioned as legacy mid-5% loans reprice toward the low-6% pipeline levels. Anthony J. Labozzetta: On the core upgrade, at a high level we will have more robustness around the lending area in terms of information and data flows. Branch account opening will be much faster and more robust. It also creates the foundation for us to attach other applications through APIs that work more efficiently. The FIS core is much more functional for a more complicated commercial bank that has a lot of verticals, so we can get the full benefit on the current core—those are some of the expected benefits. Operator: Next question will come from Stephen Moss with Raymond James. Stephen Moss: Good morning. Maybe just starting off here on the loan pipeline—looking good—just curious how you are thinking about the pull-through given economic uncertainty. I realize you updated or increased the loan growth guidance, but how you are thinking about those things? Anthony J. Labozzetta: I look at our pipeline, pull-through, and commitments—they are looking good. We are still thinking the guidance is good. We might overachieve the guidance depending on what happens with prepayments and market conditions, but I do not see anything right now, given the geopolitical circumstances, that would affect the guidance we have provided. Depending on prepayments, that will determine whether we can overachieve or come close. It is also a pretty good dynamic at Provident Financial Services, Inc. because of the way growth is distributed—it is very diverse. Just by normal dynamics, without us doing anything and just achieving our pre-loan objectives, we can still see the CRE ratio coming down because of capital build and diversification into other books like C&I, specialty lending, and middle market. That is a pretty good dynamic we are accomplishing here, which is our strategic focus. Thomas M. Lyons: As I indicated in my comments, the pull-through adjusted pipeline is about $1.9 billion. If you do the math, that is about a 60% to 61% pull-through rate. In terms of mix, about 47% is commercial real estate and multifamily, C&I is about 49%, and the balance is consumer at about 4%. Stephen Moss: And then on the deposit side, what are you seeing for competition these days, and how are you feeling about funding cost trends? Anthony J. Labozzetta: Competition is probably more heightened than I have seen in the last bunch of quarters. It is getting tougher not only on the deposit side but on the lending side. We are seeing spreads coming down and creative structures on deposit programs—people waiving fees or certain conditions, and pricing pressure. We are responding. We see good dynamics in our consumer and small business sides. On municipals, we have good RFPs moving into the second quarter. Our focus is to get our regional teams and TM teams more expanded so we can get more scale. We feel good about the prospects, but competition is stronger than I have seen in a while. Stephen Moss: On the reserve, with the CECL move down, should we think of this as a one-time adjustment, or how are your thoughts on where this reserve goes? Thomas M. Lyons: A lot of that is dependent on the forecast going forward. I would not expect material continued improvement in that forecast, given macro events. A big piece was the reduction in specific reserves. We had a really strong quarter for resolutions with very minimal losses. You saw net charge-offs of $3.1 million; about $2.5 million of that was previously reserved for, so no need to replenish those reserves. There are limited specific reserves on the remaining impaired loans that have been identified, and we are very positive on resolution prospects for a number of those credits in the coming quarter. We do not see a lot of loss content in the book overall. We also had some improvement in the portfolio, with construction loans reducing a bit, which required less pooled reserves as well. Overall, 6 basis points of charge-offs—we feel strongly about the quality of our underwriting and our credit quality going forward. Stephen Moss: Following up on the credits with the senior housing—are those nonperformers cross-collateralized? Any chance you have a weighted average LTV? Anthony J. Labozzetta: They are not cross-collateralized. They are in Delaware statutory trusts. The specific LTVs are outlined in the release; they go from 32.9% up to 81.9% on the smallest dollar credit. To give more color, these loans went into NPA not because of cash flow issues but because of the bankruptcy of the holding entity that caused payments to stop. That is why we feel strong about ultimate resolution: cash flows are intact, LTVs are strong, and we just need to go through the bankruptcy process. We feel a resolution can happen this calendar year, with minimal to no loss to us. It is hard to say absolutely no loss, but we think it is going to be a positive resolution. Operator: Your next question will come from David Storms with Stonegate. David Storms: Good morning, and thank you for taking my questions. I wanted to start with noninterest income. It was mentioned in prepared remarks that there has been cooperation between insurance and the rest of the business, helping to drive insurance growth. How much more integration or cooperation could there be here, and how applicable could that be to the wealth segment? And then a follow-up on the efficiency ratio, which has hovered in the low 50s—what appetite or ability is there to keep dialing that lower, and do any of the core updates have a significant impact on that? Anthony J. Labozzetta: We are seeing huge momentum. Insurance revenue grew about 21% year over year. The cross-functional dynamic of working with the commercial bank, Beacon, and the retail side is very integrated. Referrals are tracked, but it has become natural—people are doing it because of the value it creates for customers. There is ample room for continued insurance growth, and our focus is staffing up to support demand. There is still a lot of business within the bank that we can refer across, and the same is happening on the Beacon side—we saw positive flows this quarter and good referrals from the bank and insurance back into Beacon. We need to continue building the Beacon salesforce to handle inbound referrals. It is a differentiated revenue stream we can continue to build. On the efficiency ratio, we are constantly looking for operational efficiencies. A big part of today’s ratio reflects investments we have made in technology and infrastructure over the last several quarters; we are seeing revenue benefits from those investments. We will continue branch optimization and deploy technology tools for efficiency. Expect a “do more with less” approach going forward. I would expect the efficiency ratio to continue to trend down over time, though it will be sawtooth as we invest and then recapture positive operating leverage. Thomas M. Lyons: The new core system will help on efficiency—straight-through processing, onboarding, and automated boarding/closing should reduce manual touch and improve cycle times, supporting lower unit costs as we scale. Anthony J. Labozzetta: Kerry, before we move to the next question, I wanted to respond to the last question to Steve: the weighted average LTV on the four properties is 53%. They are not cross-collateralized, but that gives a sense of the size of the issue. Operator: Your final question will come from Manuel Antonio Navas with Piper Sandler. Manuel Antonio Navas: Good morning. Can you revisit the buyback pace going forward and how it is impacted with greater loan growth in the second quarter? You mentioned being opportunistic—what pricing would get you involved? And could you update us on places on the periphery of your geography where you have added talent or offices and their growth ramps so far? Thomas M. Lyons: The pace will depend on market conditions and our expectations for growth. You saw a significant bump in the pipeline rate, but we believe we have adequate capital and capital formation to continue to take advantage of market conditions when warranted. I do not want to define a specific price. We try to keep the earn-back on buybacks in the low three-year range at a maximum level, but it really depends on our current view about asset generation and capital formation at any point in time. Anthony J. Labozzetta: We have added talent in the Westchester market; down the Main Line in Pennsylvania around the Philadelphia area; and we are adding talent into the Cherry Hill area. As part of our growth strategy, that includes lending and deposit gathering, and we are also moving some of our business partners, like insurance and wealth, into those markets to penetrate further. Our strategic plan contemplates further expansion over time. Operator: There are no further questions at this time. I would like to turn the call back over to Anthony J. Labozzetta for any closing remarks. Anthony J. Labozzetta: Thank you, everyone, for joining the call and for your questions. Before we end, I would like to take a moment to congratulate Thomas M. Lyons. This is his last official earnings call. He has been a great leader here and has done so much for Provident Financial Services, Inc. You have been a great partner, Tom, and you will be missed by me and all of your colleagues at the bank. Thank you, Tom. We look forward to speaking with you all soon, and thank you very much. Operator: Thank you for your participation. This does conclude today’s conference. You may now disconnect.
Operator: Greetings, and welcome to the NWPX Infrastructure, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Scott J. Montross, President and CEO. Please go ahead, sir. Scott J. Montross: Good morning, and welcome to the NWPX Infrastructure, Inc. First Quarter 2026 Earnings Conference Call. My name is Scott J. Montross, and I am President and CEO of NWPX Infrastructure, Inc. I am joined today by Aaron Wilkins, our Chief Financial Officer. By now, all of you should have access to our earnings press release, which was issued yesterday, April 29, at approximately 4:00 p.m. Eastern Time. This call is being webcast and it is available for replay. As we begin, I would like to remind everyone that statements made on this call regarding our expectations for the future are forward-looking statements, and actual results could differ materially. Please refer to our most recent Form 10-K for the year ended 12/31/2025 and our other SEC filings for discussion of such risk factors that could cause actual results to differ materially from our expectations. We undertake no obligation to update any forward-looking statements. Thank you all for joining us today. I will begin with a review of our first quarter performance and our outlook for 2026, and then Aaron will walk you through our financials in more detail. We delivered a strong start to 2026. Net sales were up 19% year-over-year to $138.3 million, reflecting meaningful growth across both our Water Transmission Systems (WTS) and Precast businesses. Our strategy delivered record first quarter consolidated gross profit of $26.7 million, up 38% from last year, with our gross margin expanding 260 basis points year-over-year to 19.3%. That strength carried through to the bottom line, highlighting the operating leverage in our model and continued execution across the organization. We generated record first quarter profitability with earnings of $1.08 per share, and produced strong free cash flow of $25.7 million, or $2.62 per share, reinforcing the strength and consistency of our earnings profile and the resilience of our cash flows. Turning to our WTS segment, revenue reached a first quarter record of $93.5 million, up 19% year-over-year with strong margin improvement. Our performance reflected higher production volume, with tons produced up 18%, supported by strong project execution. This growth came despite adverse weather that caused unscheduled downtime across three WTS facilities early in the quarter. Selling prices were up 1% year-over-year driven by changes in product mix, and we also benefited from favorable project timing across several large water transmission jobs. In addition, we saw one of our strongest booking quarters to date with robust bidding activity and the emergence of a significant previously unplanned project that is under NDA, which will contribute positively to our 2026 result, all of which contributed to a substantial increase in our backlog, reinforcing the strength of demand across our markets. WTS backlog, including confirmed orders, ended the quarter at a record $430 million, up from $346 million at year-end and well above the $289 million level we reported this time last year. Looking ahead, we expect the 2026 bidding environment to be moderately stronger than 2025. WTS gross profit increased 42% year-over-year to $17.3 million, resulting in a gross margin of 18.5%, up 300 basis points from last year. This improvement reflects higher volume supported by strong customer demand, and the related efficiency gains and higher overhead absorption that come with that level of production, favorable product mix, and the overall solid operational execution across the segment. Now turning to our Precast segment. Precast revenue increased 19% year-over-year to a new record first quarter level of $44.8 million. Our performance was driven by a 14% increase in selling prices from a favorable change in product mix, and increased sales volume reflecting continued growth in the nonresidential portion of our business. At Park, production increased 30% year-over-year with strong growth in revenue per yard shipped. Despite borrowing costs that remain elevated as the Fed held interest rates steady in 2026, we are continuing to see signs of improvement in the nonresidential demand trajectory as we progress through 2026, specifically related to data center projects that have been instrumental in buoying the commercial construction demand. At Geneva, production and shipments had solid year-over-year gains of 78% respectively, despite seeing a moderate slowdown in the residential construction market, which has more than been offset by growth in Geneva’s nonresidential business. Leading indicators remain solid early in 2026 with the Dodge Momentum Index up 26% in March versus March 2025. The commercial sector was up 29% and institutional was up 20%, indicating positive signals for nonresidential construction activity this year and into 2027. Our Precast order book ended the quarter at $55 million, down modestly from $57 million at year-end and below the $64 million level at March 31. The Precast order book has remained stable for the last several quarters and continues to keep pace with higher levels of production and customer shipments. Stronger volumes and pricing drove a 30% year-over-year increase in Precast gross profit to $9.3 million, resulting in a gross margin of 20.9%, up from 19.1% last year. These results show that absorption rates are improving with higher throughput. We expect margins to continue recovering as nonresidential demand builds. Now turning to our strategic growth initiatives. As previously discussed, we are making solid progress expanding Precast capabilities across our network. We are also looking at where it makes sense to bring Precast into additional WTS facilities through our product spread strategy, which remains an integral part of our long-term growth plan. As part of that endeavor, we are seeing better capacity utilization at our Precast plants, strong momentum at our Geneva operations in Utah, and steady progress as we introduce Park and other Precast-related products into more WTS locations. At the same time, we continue to evaluate M&A opportunities in the Precast-related space that can accelerate our strategy, expand our manufacturing capabilities and efficiencies, and broaden our geographic reach and product portfolio. Consistent with this approach, we are looking at both single-plant acquisitions and larger opportunities that can support long-term growth and help us advance our Precast expansion. As previously announced, we completed the acquisition of Bouton Precast, a single-site producer in the high-growth Pueblo, Colorado market during 2026. The integration is off to a strong start and we are encouraged by the long-term growth potential we see in the Colorado market. I will now turn to our outlook for 2026. In our Water Transmission Systems segment, we expect higher revenue and margins compared to both 2025 and the prior quarter, driven by more favorable volume and product mix and the emergence of a significant previously unplanned project. We entered 2026 with a robust WTS backlog and elevated bidding levels, and both strengthened further in the first quarter, providing even greater visibility into near-term demand. Based on what we are seeing today, we expect full-year bidding levels to be stronger than what we saw in 2025 and we expect backlog to stay elevated throughout 2026. We remain encouraged by the level of activity across current and upcoming water transmission projects, which continue to come with improved economics and margins. For a more complete view of these projects, please refer to our investor presentation on our website. Turning to Precast, we maintained a stable and healthy order book in 2026 and we expect a stronger year for the Precast business overall. Demand remains healthy in the nonresidential market, supporting continued momentum across our Park and Geneva platforms. For the second quarter, we expect Precast revenue to be higher than the second quarter of last year and the prior quarter with stable margins driven by solid demand, higher production levels with improved absorption, and a strengthening order book. On a consolidated basis, we expect the second quarter to be stronger than we have seen in recent years. We believe 2026 is shaping up to be a historic year for NWPX Infrastructure, Inc. Continued momentum in our Precast business combined with strong bidding activity in our WTS business is indicating the potential for another record year. In addition, the significant previously unplanned WTS project noted earlier is additive to what we already expect for a record year. In closing, I am very pleased with our results, which set new first quarter records across nearly every metric. Our teams delivered exceptional execution throughout the quarter, and I want to thank everyone at NWPX Infrastructure, Inc. for their commitment to our strategy and to maintaining a strong safety culture. With the WTS backlog that is stronger than ever, a healthy bidding environment, and solid momentum in our Precast order book, we feel well positioned to carry this performance forward and continue building on the progress we have made across both segments. As we look ahead, our near-term priorities remain: one, maintaining a safe and rewarding workplace; two, focusing on margin over volume; three, intensifying our pursuit of strategic acquisitions; four, implementing cost efficiencies across the organization; and five, returning value to our shareholders when M&A opportunities are limited. I will now turn the call over to Aaron, who will walk through our results in greater detail. Aaron Wilkins: Thank you, Scott, and good morning to everyone joining the call today. Before I begin, I would like to mention that unless otherwise stated, all financial measures in my remarks refer to 2026, and all comparisons will be year-over-year comparisons versus 2025. I will begin with our profitability. We delivered record first quarter consolidated net income of $10.5 million, or $1.08 per diluted share, up from $4 million, or $0.39 per diluted share, reflecting the improving operating leverage on higher revenues and the continued strength in execution across the business. On the top line, consolidated net sales grew 19.1% to $138.3 million from $116.1 million last year. Our Water Transmission Systems segment also posted a record first quarter, with sales rising 19.1% to $93.5 million versus $78.4 million. This growth was driven by an 18% increase in tons produced due largely to project timing and a 1% improvement in selling price per ton due to product mix. Precast delivered a record first quarter as well, with sales up 18.9% to $44.8 million compared to $37.7 million. The results benefited from a 14% increase in selling prices due to product mix and a 4% increase in volume shipped. As a reminder, the products we manufacture are unique, and the average sales prices for both of our operating segments, as well as the Precast shipment volumes and WTS production volumes, cannot always be relied upon as comparable metrics due to variations in the mix between periods. We also achieved record first quarter consolidated gross profit supported by higher volume and favorable pricing and mix. Gross profit was $26.7 million, up 37.7%, representing 19.3% of sales, a 260 basis point improvement from $19.4 million or 16.7% of sales. In Water Transmission Systems, gross profit increased 42.3% to $17.3 million, or 18.5% of segment sales, a 300 basis point improvement from $12.2 million or 15.5% of sales. The increase reflects higher production volume and the associated operational efficiency gains, as well as favorable changes in product mix. Precast gross profit also reached a record first quarter, rising 30% to $9.3 million or 20.9% of segment sales, compared to $7.2 million or 19.1% of sales. The 180 basis point improvement in gross margin was largely driven by higher selling prices tied to product mix. Selling, general and administrative expenses were $14 million, up 1.5%, and represented 10.1% of net sales, a 180 basis point improvement from 11.9% of net sales a year ago, even with modest increases in incentive compensation expense. For the full year 2026, we now expect consolidated SG&A to range between $53 million and $55 million. Depreciation and amortization expense was $4.8 million compared to $4.4 million, and we continue to expect a full-year expense of approximately $20 million to $22 million. Interest expense declined to $0.3 million from $0.6 million, reflecting lower average daily borrowings. Income tax expense was $2 million, resulting in an effective income tax rate of 16% compared to $1 million or a rate of 19.8% last year. The effective rates for both quarters were primarily impacted by tax windfalls recognized upon the vesting of equity awards. Our tax rate can vary based on the level of total permanent differences relative to pre-tax income. For the full year, we currently expect an effective tax rate of approximately 24% to 26%. I will now turn to our financial condition. At 03/31/2026, cash and cash equivalents improved to $14.3 million from $2.3 million at year-end. Our debt balance totaled $10.7 million, and there were no outstanding borrowings on our credit facility at March 31. This resulted in a net cash position of $3.5 million as we continue to drive cash to the balance sheet to support our growth and shareholder return priorities. Our improved profitability, coupled with favorable changes in working capital, drove strong net cash provided by operating activities of $29.2 million, reflecting a more than 500% increase from $4.8 million last year. Capital expenditures were $3.5 million compared to $3.7 million last year. For the full year 2026, we continue to expect CapEx in the $20 million to $24 million range, including approximately $6 million for investment projects to support our Precast product spread strategy and broader Precast growth initiatives. As a result, we generated $25.7 million of free cash in the quarter compared to $1.2 million last year. For 2026, we are raising our full-year free cash flow outlook to $50 million to $56 million, up from a prior range of $40 million to $46 million. In terms of capital deployment for the quarter, we spent $8.9 million to complete the purchase of Bouton Precast, repurchased approximately 33 thousand shares of our common stock at an average price of $67.17 for a total of $2.2 million, and repaid $1 million in debt. These activities highlight our ability to continue to grow NWPX Infrastructure, Inc. while concurrently returning value to our shareholders. To close, we delivered a strong start to the year, with first quarter records for revenue under the current configuration, gross profit, and earnings. We also generated very strong free cash flow, further strengthened our balance sheet, and remained disciplined in our capital deployment. Our record Water Transmission Systems backlog and our solid Precast order book, coupled with the commercial team’s focus on pricing and our track record of superb operational execution, position us to achieve new heights in financial performance as we move through the remainder of 2026. Thank you to our employees for their continued concentration on workplace safety and to our shareholders for their continued support. I will now turn it over to the operator to begin the question-and-answer session. Operator: We will now open the call for questions. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question today comes from Julio Alberto Romero with Sidoti & Company. Julio Alberto Romero: Thanks. Good morning, Scott and Aaron. Scott, I appreciate the significant previously unplanned project is under NDA, so to the extent that you can, could you maybe help us understand, at a high level, how additive the project is to your 2026 outlook? Does it go beyond 2026, potentially to 2027? And then secondly, should we think of this as kind of a one-off, or does it have the potential to lead to additional phases or repeat business with that customer? Scott J. Montross: Yes, and like you said, we are under NDA. It is a government-related project. It is being produced at multiple of our plants. What I would tell you is it looks like this piece of the project, because there are, from what we understand, multiple other pieces of this project as we go forward into the future, is right in the area of about $50 million. The real question is it is a relatively short-fuse job that is scheduled to be produced in the late second quarter, third quarter, going into about the mid-fourth quarter of this year, and that segment is expected to be done. I think one of the challenging things right now is there is a little bit more of a question on how quickly you can get all the steel to do it, so there is a potential that some of it could leak into next year. But the understanding we have of these projects is there are multiple phases that are planned right now that go out into the future that could be additive to other years as we go into the future, and I think that is probably as clean of a look as I can give you, Julio, on the thing. Julio Alberto Romero: Absolutely. I really appreciate the color you gave with that answer. On your cash flow in the quarter, it was very strong, and it looks like your net contract asset position improved pretty meaningfully, driven by contract liabilities. Can you give us any more color on what drove that increase, and is it tied to that project, or any other larger WTS projects? Aaron Wilkins: Yes, hi, Julio. The cash flows for the business obviously can be a little bit challenging to forecast because they can at times be a little lumpy, which is normal. Really what happened, and what continues to be a focus for our Water Transmission Systems commercial teams, is to drive what I call special billings—trying to get the steel billed in advance of the project, get MOH payments and progress payments throughout the job. That is something that over the span of the last three years we are seeing growing success at. It is still negotiated individually with specific customers, but we are able to do that more often than we used to be able to do it. What happened was we had a $20 million collection on one of those special billings come in in the month of February or March. You will notice that our accounts receivable remains elevated, which means that we are still doing a great job of billing customers. That is because we have, also on a completely separate job, billed another customer for a little over $20 million, and that has since been received. The business model really has been driven to get the cash flows as a focus, and that is why, in part at least, I raised our guidance range for free cash for 2026. I think we are going to be more successful. I think there are more opportunities for the WTS team to do these special billings in the year compared to 2025, which was also a very successful year, by the way. And I think that the new job that Scott just talked to you about, those two elements were worthwhile for raising the range so quickly into the year. I will tell you, though, Julio, the thing that could still come, depending on the success—there is always timing, right? You could always be paid on January 1 for something that really was attributed this year, which is why I may be a little bit gun-shy. But it is very possible that cash flows could go up another clip of $10 million or more in the ranges to be broadcast in the future. So it is not unheard of to think of $60 million or more of free cash this year for the company. Julio Alberto Romero: Understood. Very helpful there. And one more for me: you have record backlog of $430 million in WTS, including confirmed orders. Can you help us think about where your capacity utilization stands for that segment, and would you be able to take on additional work from here? Scott J. Montross: Yes. We can take on a lot more work than we have right now with the capacity we have spread across the country in our plants. We would need to move stuff between plants, but we have plenty more room to take on additional work as we go forward. Capacity utilization—if we are much over probably 70% or 72% in the Water Transmission Systems business—that is probably about a high point for us at this point. You can obviously add additional shifts too if we need to, which we do at certain plants at certain times when it is busy enough. So yes, we have a lot more room to produce a lot more, Julio, and are ready to do so. Julio Alberto Romero: Excellent. Thanks for all the color, and best of luck. Scott J. Montross: Thank you. Thanks, Julio. Operator: As a reminder, if you would like to ask a question, please press star 1 at this time. We will pause for just a moment. At this time, there are no further questions. I would like to turn the call back over to Scott J. Montross for closing remarks. Scott J. Montross: I would just like to wrap up by saying thank you to everybody for joining the call, like always. We delivered a very strong start to 2026. I think we are at a point now where we can say that NWPX Infrastructure, Inc. is hitting on all cylinders with the things that we are seeing. The bidding, outside of the project that is under NDA, in the first quarter in Water Transmission was probably the strongest we have seen, and really probably the strongest booking quarter that we have ever had on the Water Transmission side of the business. So we have significant momentum going forward on the Water Transmission side. On the Precast side, again, we are seeing a lot of work around data centers. Data centers are one of the things that are really buoying the commercial construction side of the business now, and the two states that we are in on the Precast side—primarily in Texas and in Utah—are very strong data center centers. I think there are something like 140 projects going on in Texas that we are taking part in, and other projects going on in Utah, which is becoming more of almost a giga site for data centers where there are really large ones being built. Even with a little bit of the slowdown that has been discussed in the press on the residential side of the business, we are still seeing very strong Precast business, and where we have seen slowdown on the residential side—for example, at our Geneva business—that is being picked right up on the nonresidential side, and the Precast business continues to grow. The biggest thing is we continue to advance our strategy going forward with both organic growth and M&A; we are going to continue to do that. We expect a strong second quarter. When we looked at the projections for 2026, even before we had this special project come forward, we were projecting another record year and stronger than 2025, and this big project is just additive to that. We are hitting on all cylinders. We appreciate your support as shareholders and our analyst support. Thank you, and we will see you in late July. Operator: Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time.
Operator: Hello, and welcome to WESCO International, Inc.'s 2026 First Quarter Earnings Call. If you would like to ask a question, please press star followed by 1 on your telephone keypad. Please note that this event is being recorded. I would now hand the call over to Scott Louis Gaffner, Senior Vice President, Investor Relations, to begin. Thank you, and good morning, everyone. Scott Louis Gaffner: Before we get started, I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance and by their nature are subject to uncertainties. Actual results may differ materially. Please see our webcast slides and the company's SEC filings for additional risk factors and disclosures. Any forward-looking information speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additionally, today we will use certain non-GAAP financial measures. Required information about these measures is available on our webcast slides and in our press release, both of which are posted on our website at wesco.com. On the call this morning, we have John J. Engel, WESCO International, Inc.'s Chairman, President, and CEO, and our Executive Vice President and Chief Financial Officer. I will now turn the call over to John. John J. Engel: Thank you, Scott. Good morning, everyone. Thank you for joining our call today. We delivered an exceptional start to 2026, building on last year's market outperformance and accelerating business momentum. In the first quarter, sales, backlog, operating margin, adjusted earnings per share, and free cash flow all increased versus the prior year and exceeded our expectations. Record first-quarter sales of $6.1 billion were up 14%, marking our third quarter in a row of double-digit sales growth. Booming data center demand remains a significant growth driver of our business. Data center sales of $1.4 billion were up approximately 70% versus prior year and represented 24% of total company sales in the quarter. Overall, our business momentum continued to accelerate in the quarter with organic sales up sequentially, outpacing normal seasonality and reinforcing the strength and durability of demand across our end markets. This performance reflects broad-based strength across our entire portfolio led by continued strong momentum in CSS and EES, along with improving trends in UBS. We again ended this quarter with a record backlog, up 22% versus prior year, reflecting the continued effectiveness of our cross-selling program and providing clear visibility of the secular growth trends in our business. Profit growth, margin improvement, and free cash flow generation were also excellent in the first quarter. Adjusted EBITDA grew 25% and adjusted EBITDA margin expanded 60 basis points driven by gross margin expansion and strong operating cost leverage on our double-digit sales growth. Adjusted diluted earnings per share was up 52% versus the prior year. Free cash flow generation at 128% of adjusted net income was also very strong, underscoring our disciplined execution and continued focus on working capital management. We are very pleased with our first-quarter results. While we remain mindful of the volatility of the broader macroeconomic environment, we see positive momentum continuing across our business. As a result, we are raising our full-year outlook for 2026. As the market leader and with positive momentum building, I am confident that WESCO International, Inc. will continue to outperform our markets through disciplined execution, our differentiated value proposition, and the strength of our global platform. Our team remains focused on driving strong growth and margin expansion and delivering superior value to our customers and shareholders. One final comment: as we announced earlier this year, Dave Schulz is retiring from WESCO International, Inc., and our new CFO has joined our team. I would like to thank Dave for his outstanding leadership, his dedicated service, and his tremendous contributions to WESCO International, Inc. and our overall success over the past ten years. We wish Dave and his family our very best. Our new CFO is off to a great start. I will now turn it over to him to take you through our excellent first-quarter results and raised full-year outlook in more detail. Unknown Speaker: Thank you, John, and good morning, everyone. I would like to thank John and the board for the opportunity, and I want to recognize Dave for his leadership and thank him for his partnership during this transition. Before turning to our results, I will take a minute to touch on my near-term priorities. I intend to focus on partnering with the leadership team to scale our business in attractive end markets, drive profitable growth, continued market outperformance, and deliver strong cash flow with disciplined capital allocation. That mindset has been shaped by working across both public and private companies, often in complex global, highly competitive technology and capital-intensive businesses. John and I are aligned on the initial focus areas where we have the potential for taking our existing great capabilities to the next level. First, driving operating leverage and margin expansion as we scale, particularly in data centers and other high-growth end markets. This will be accomplished by a combination of partnering with our business leaders to ensure that our commercial and go-to-market strategy reflects our enhanced value proposition and partnering with our functional leaders on continuing to improve our cost structure. It is all about profitable growth. Second, improving working capital efficiency and cash conversion through tighter processes, analytics, and execution discipline. This is not just about back office. It is about optimizing our end-to-end capabilities from sales funnel to cash collection. Transitioning to our results, let me start with the highlights for the quarter. We delivered strong organic sales growth year over year, with sequential performance better than typical seasonality. Profitability improved with meaningful EBITDA margin expansion. EPS was up more than 50%, and free cash flow generation was strong at 128% of net income. With that, let me turn to our first-quarter results starting on Slide 4. We delivered an excellent first quarter with reported sales of $6.1 billion, up 14% year over year, including 12% organic growth. We delivered volume growth across all three SBUs and realized an estimated price benefit of approximately three points. Gross margin was 21.2%, up approximately 20 basis points year over year, and SG&A operating leverage improved by 40 basis points. As a result, adjusted EBITDA increased 25% to $389 million and adjusted EBITDA margin expanded 60 basis points to 6.4% of sales. Turning to Slide 5, adjusted EPS increased 52% year over year to $3.37. The year-over-year improvement was driven primarily by stronger operating performance in the quarter, reflecting higher sales and improved profitability. Additionally, EPS growth benefited from a lower tax rate and from the absence of the preferred stock dividend following last year's redemption. Turning to Slide 6, CSS delivered another excellent quarter with organic sales up 22% year over year and reported sales up 24%. This growth was driven by continued strength in WESCO Data Center Solutions, which delivered a record quarter with sales up over 60%. Within the rest of the portfolio, security delivered high single-digit growth, while enterprise network infrastructure declined mid-single digits due to weakness in the service provider market. However, including data center-related sales, enterprise network infrastructure grew high teens year over year. Overall, organic growth was driven primarily by volume, up about 21%, with price contributing approximately 1%. Backlog ended the quarter at a record level and was up approximately 40% versus the prior year, reflecting continued strong data center project activity and order rates. Profitability also improved meaningfully and our focus remains on margin expansion as we scale the business, particularly in our data center markets. Adjusted EBITDA increased 41% to $223 million and adjusted EBITDA margin expanded 110 basis points to 9%. Importantly, despite some modest pressure on gross margin from large data center projects, we generally see healthy and accretive EBITDA margins for WESCO International, Inc. data center solutions. Moving to Slide 7, EES delivered solid growth in the quarter with organic sales up 7% and reported sales up 9% year over year. Growth was driven by strong execution in OEM and construction. OEM was up mid-teens, driven by strength in semiconductor and data center markets. Construction was up low double digits, supported by robust wire and cable demand and continued infrastructure project activity. Industrial was down low single digits, primarily reflecting project timing impacts. However, our industrial stock-and-flow business grew mid-single digits in the first quarter, and backlog was up double digits supporting an improving trend. Data center sales in EES were up over 100% year over year and represented about 10% of EES sales, highlighting the continued scaling of our exposure to this secular growth trend. Overall, organic growth was driven by solid underlying demand, with volume contributing approximately 3% and pricing contributing about 4%. Importantly, backlog ended the quarter at a record level, up 14% versus the prior year, supported by strong order activity and pipeline conversion. Profitability improved meaningfully in the quarter. Adjusted EBITDA increased 30% to $185 million, and adjusted EBITDA margin expanded 130 basis points to 8.2%, driven by higher gross margins and strong operating leverage. Turning to Slide 8, UBS delivered 6% organic sales growth in the first quarter supported by improving demand and an increasing backlog. Utility delivered high single-digit growth driven by strong double-digit growth in investor-owned utilities and continued positive momentum in grid services. Public power was flat year over year, which is encouraging. However, the market remains highly competitive, and gross margins are expected to remain under pressure given weak sales in transformers and wire and cable, consistent with our prior commentary. Broadband delivered mid-single-digit growth year over year, supported by strength in the U.S. Overall, organic sales growth reflected approximately 3% volume growth and about 3% pricing. Backlog increased 16% year over year. We are seeing increasing interest in our grid services-enabled power capabilities from hyperscalers and other data center customers. We have a growing funnel of sales opportunities and we are bullish that we will benefit from AI-driven data center investments and other major power-related infrastructure projects over the long term. Adjusted EBITDA was $131 million, down 5% versus the prior year, and adjusted EBITDA margin decreased 120 basis points to 9.6%, primarily driven by gross margin pressure and higher SG&A as a percentage of sales. Recall that UBS is accretive to total company adjusted EBITDA margin; given its higher margin profile, the improved growth rates will lead to even higher margins over time given the operating leverage. Turning to Slide 9, I want to take a moment to further review the continued momentum we are seeing in the broader data center market and WESCO International, Inc.'s role in that growth. Data center sales continued to scale in the first quarter, reaching approximately $1.4 billion, up about 70% year over year and representing 24% of total company sales in the quarter. Notably, the data center end market is now WESCO International, Inc.'s largest end market across all three SBUs and supports a diverse set of customers with a diverse set of capabilities. On a trailing twelve-month basis, data center sales are now approximately $4.8 billion, or 20% of total sales. This underscores both the strength of the secular demand environment and the expanding scope of what we provide customers across all business units and across the full life cycle. Turning to Slide 10, this highlights our end-to-end data center offering and the role we play across the full life cycle, with exposure across CSS, EES, and UBS. WESCO International, Inc. supports hyperscale, multitenant, colocation, and enterprise customers with a comprehensive portfolio of products, services, and solutions that span power, connectivity, and ongoing operations. Our expanding capabilities and global ecosystem position us as a trusted partner as customers build, scale, and operate increasingly complex data center environments. Turning to Slide 11, we delivered strong free cash flow of $213 million in the first quarter. Free cash flow was 128% of adjusted net income. Despite sequential sales growth, net working capital was a source of cash in the quarter, largely driven by timing of inventory purchases and accounts payable. Moving to Slide 12, during the quarter, we executed a highly successful $1.5 billion bond refinancing that was upsized relative to the initial launch, reflecting strong investor demand and record pricing. Notably, we achieved the lowest coupon WESCO International, Inc. has ever achieved on a senior notes offering and the lowest for a double-B rated five-year note issued since 2021. The net proceeds will be used to redeem our 2028 senior notes, improve liquidity, and further strengthen the balance sheet. This refinancing meaningfully improves our debt maturity profile and is expected to generate more than $20 million in annualized interest expense savings. We exited the quarter at 3.2x net debt to adjusted EBITDA. Additionally, we repurchased $25 million of shares during the quarter towards offsetting dilution. Moving to Slide 13, within CSS, we have raised our 2026 outlook to low double-digit growth, reflecting the continued strength and visibility we are seeing in data centers. Data center sales are now expected to be up 20%+ for the year. Given the size of the market, we intend to continue to focus on healthy EBITDA margin business. Our outlook for EES and UBS remains unchanged. Moving to Slide 14, we are increasing our outlook for the full year given strong first-quarter results. Before I get into the details, I want to address our position relative to the current macroeconomic uncertainty. Through the first quarter and into April, we have seen no meaningful disruption to our revenue or profitability, but we continue to monitor the situation closely and kept this backdrop in mind for our outlook. In the Middle East, I am pleased to report that all of our employees are safe. From a company perspective, we generate less than 1% of our sales in the region, with the majority of those sales related to our CSS business. The secondary impacts on transportation costs are more tangible but have so far been manageable. Our teams are focused on passing these cost increases to our customers where appropriate and limiting the time that transportation quotes are valid to minimize overall risk. On the tariff front, the overall impact to WESCO International, Inc. is not material. As a reminder, WESCO International, Inc. is the importer of record for a small percentage of our cost of goods sold, typically low single digits. We typically increase prices when needed to maintain margins. At this point, we do not expect any material recoveries from the IEEPA decision. Based on the strong start to the year, we are raising our full-year 2026 outlook. We now expect reported sales growth of 6% to 9%, with organic sales growth of 5% to 8%, which implies reported sales of approximately $24.9 to $25.6 billion. Our assumptions around foreign exchange and pricing remain unchanged. On profitability, we continue to expect adjusted EBITDA margin in the range of 6.6% to 7%, essentially increasing our EBITDA guidance in dollar terms. We are raising our adjusted diluted EPS outlook to $15 to $17 per share, reflecting earnings leverage demonstrated in the first quarter as well as slight adjustments to the expected tax rate for the year. There is no change to our outlook on interest expense, based on our current view of no rate cuts this year and factoring in timing of the debt raise and subsequent paydown. Finally, we continue to expect free cash flow of $500 to $800 million as we maintain working capital discipline supporting higher growth. As a reminder, our historical pattern is typically about 70% of our annual cash flow is generated in the second half of the year. Turning to Slide 15, while April is not entirely closed out, month-to-date sales per workday are up about 10% year over year, with growth continuing to be led by CSS. For the quarter, we expect reported sales to be up high single digits. Recall that more than 50% of our sales are related to project activity and the mix of project sales is higher in the second and third quarter due to increased construction activity. The timing of project billings at the end of the quarter will determine where we land in the high single-digit range. On margins, second-quarter EBITDA margin is expected to be about flat year over year and within our full-year guidance range. Higher incentive compensation, approximately 25 basis points, accounts for most of the year-over-year pressure, and we continue to expect double-digit growth in adjusted EPS. As you think about our outlook, keep in mind that we had strong sales growth and good EBITDA margins in the second, third, and fourth quarter of last year. On a two-year stacked basis, growth is expected to remain strong and consistent with the outlook we have provided. We have covered a lot of material this morning, so let me briefly recap the key points before we open the call to your questions. In summary, we delivered an excellent start to the year with double-digit sales growth, margin expansion, and over 50% earnings-per-share growth. AI-driven data centers and related investments from our customers remain a key driver of growth across several product categories and verticals. We generated strong cash flow and improved our leverage and debt maturity profile during the quarter. Despite macroeconomic uncertainty, we are confident in our positive business momentum and are raising our full-year outlook. As we lean in to support organic growth, there is no change to our previously communicated capital allocation priorities and guiding principles. With that, operator, we can now open the call to questions. Thank you. Operator: We will now open the call for questions. If you would like to ask a question, please press star followed by 1. Our first question today comes from David John Manthey with Baird. Please go ahead. David John Manthey: All right, thank you. Good morning, guys. Good morning, John. CSS is doing amazing, so I will focus on EES and UBS with my questions first thing here. First, on lead times, I know within the industrial business you mentioned project timing as the reason for that small decline there. With switchgear components stretching well a year and medium voltage switchgear sometimes 40 to 60 week lead times, you are clearly navigating any shortages in the market well overall. But could you just talk about the specific issues? Where are the pinch points, and is that what you mean by project timing? John J. Engel: Yes. Great question, Dave, and your lead-time comments are accurate. We are still seeing extended lead times in a couple of critical categories, but honestly we have been facing those extended lead times since the pandemic, and we have been managing the business well. I think this is more of a very specific intra-quarter project timing issue. I will give you my views of industrial. I have mentioned this before. I really believe we are at the beginning of an industrial super cycle in the U.S. in particular. It is driven by AI-driven infrastructure investments, clearly the need for increased power generation not just for AI data centers but for all these mega projects, and a fundamental secular trend that I think is becoming more apparent every day regarding reshoring. These secular trends are going to play out over many years, and they really expand WESCO International, Inc.'s opportunity set. Specifically relative to your question in Q1, I would ask you to look at our short-cycle business. Our industrial stock-and-flow, the short-cycle business, MRO supplies and such, was up in line with mid-single-digit growth with the recent recovery in industrial production. That is a good and important leading indicator. It was offset for us with some project timing issues. Relative to the project timing issues, however, our book-to-bills were exceptionally strong in EES and particularly in industrial in the first quarter, and we have double-digit backlog growth in the industrial portion of EES. That supports a future improving trend for industrial, again consistent with my overall views of the cycle. David John Manthey: Thanks for that, John, and I agree. Maybe I could ask the CFO: from the first conversation that you and I had, I get the impression that you are a deal guy at heart. Could you discuss, as you settle in here, how you find the WESCO International, Inc. M&A process, and as you think about the pipeline, your general thoughts on consolidation going forward? Unknown Speaker: Yes, Dave. I have spent a lot of time on operations. One thing I would mention: I am more of an operations guy than a deal guy. But I do like to get into the operations side of deals. I would say we have a great team here evaluating deals, and we are going to be very active, but also very disciplined. We want to make sure that there is fit in terms of our strategy and where we want to take the business, and we want to play into a lot of the megatrends that we are seeing in the marketplace. It is all about how a deal accelerates our overall growth and profitability, and not just something that we would buy to leave standalone. Like we have talked about, the margin profile is another real important driver for us. We are very focused on it. We have launched a number of initiatives on that front, and M&A will be another lever. One thing back on your earlier question, not specific to EES and UBS: I came from the infrastructure side, building a lot of infrastructure. One of the things that we see—and we will see some of the secondary effects here—is the throttling factor for building infrastructure really are two things: lead time and skilled labor. That has been true for a number of years and will continue to be true going forward. It is not the appetite for investment; it is not the allocation of capital; it is really those two things that are calibrating the spend quarter over quarter from a customer's perspective, not our perspective. David John Manthey: I appreciate your thoughts. Thank you, and thanks, John. Unknown Speaker: Thanks, Dave. Operator: The next question comes from Analyst with RBC Capital Markets. Please go ahead. Analyst: Hi. This is Kenny Stemen for Deane today. I wanted to ask you about data centers. Can you unpack data center strength given you are clearly outperforming peers here? Where are you gaining share of wallet? How is the growth rate different across the gray space, white space, and services? And related to that, what is driving the step down in data center growth rate in the back half in your guidance? Thank you. John J. Engel: Good morning. We have outlined white space and gray space growth rates. White space, ostensibly supported and provided by our CSS business with deep roots that go back decades, grew north of 60% in the quarter and is the driver of the backlog growth in CSS, a major driver. Very strong growth rates in white space. Services are embedded in that; we do not break that out separately. For the gray space, ostensibly served by EES, that was up over 100% in the quarter, and again services are baked into that. We are very confident that we are outperforming the market meaningfully. We are uniquely positioned with our portfolio because we have the datacom-related solutions—white space with CSS—we have the core electrical infrastructure and connectivity solutions supported by our EES business, and we have the power solutions supported by our UBS business, which is our grid services in particular tucked under UBS. Relative to the outlook, we took investors through that when we provided our full-year guide. We think it was appropriate originally; we have stepped it up meaningfully now given this exceptional start to Q1. Analyst: Thank you. I appreciate that. Sticking with CSS, another really good double-digit incremental margin for this segment this quarter. What needs to happen for these double-digit incremental margins to be sustainable and potentially move toward the mid-teens given you are still executing on large projects? John J. Engel: We have been very clear on how we are managing that business. We have a new CSS leader who has been at the helm for four quarters. He took a business that had positive momentum and accelerated that momentum and stepped up the performance meaningfully. You see that in the results. We are very aggressively managing our gross margins, and you can see they remain stable. We are trying to expand gross margins too, and we would love to do that over time, but we have stable gross margins in CSS and outstanding operating cost leverage. To be at 9% EBITDA for Q1—we are thrilled with that. It is a huge step up. We have been north of a nine-handle on EBITDA margins more than one quarter in a row; we had it in Q4 as well. You are seeing the power of our portfolio, our execution, and the inherent operating leverage in our business model showing up in the EBITDA expansion for CSS. We are very focused on gross margins—every single basis point matters—and we will ensure the operating cost leverage, and we have very strong top-line momentum. The backlog is at an all-time record level, growing at 40% that is well in excess of our first-quarter sales growth rate. As a side note, the backlog growth for all three businesses and segments was well in excess of our first-quarter sales rates for each of the three SBUs. Analyst: Appreciate that. Thank you. Operator: The next question comes from Sam Darkatsh with Raymond James. Please go ahead. Sam Darkatsh: Good morning, John. Good morning, CFO. How are you? John J. Engel: Good. I am good, Sam. How are you? Sam Darkatsh: I am well. Thank you for asking. Two questions. It looks like Slide 15 shows April coming in maybe better than March. The comparisons year on year are pretty similar, and you are saying April is up 10%. Can you give a little color on what you are seeing, John? Are you seeing stock-and-flow improving over the last month or two, or is that just timing of projects? John J. Engel: Good question, Sam. First, I would say mix. We are seeing a consistent mix with what we had in the first quarter. We still have two days to go—we are in the last day—but by the time we see the final numbers for yesterday and then we have today, which will close the quarter, we will have the full view. We have very strong book-to-bill rates continuing, again mix consistent with Q1. In Q1, we had very nice stock-based sales momentum. Projects kicked in very nicely. Relative to my comments on EES industrial, we had very good stock-and-flow momentum there; it was project timing that resulted in that not being a net growth in Q1. I feel good about our stock momentum, Sam. I will make that comment. Sam Darkatsh: Thank you. Second question: I think there was a recent presidential determination that authorizes federal purchasing and financing for the electrical grid. How material might this be for you, and when or where would it materialize first? John J. Engel: First, the various associations we are part of have been working across the industry and with industry partners and association members, of which we are a participant, proactively with the federal government on addressing the core issues around supporting this infrastructure buildout in the U.S. The biggest driver is power and the power chain. We would see that as supportive of what I see as fundamentally secular growth trends in utility. I have made a strong statement that utility was classically a cyclical industry and has now moved secular growth even though we are not seeing that manifest in all the numbers yet. We would see it in our UBS business and in our EES business—supportive of the secular trends. Sam Darkatsh: Thank you much. Operator: The next question comes from Guy Drummond Hardwick with Barclays. Please go ahead. Guy Drummond Hardwick: Good morning. John, I want to click on the point you brought up earlier about backlog growing faster than sales in Q1. So organic sales up 12%, backlog up 22%. At what point do sales catch up with backlog, or does backlog really underpin 2027 revenues to the extent that they are lengthening somewhat? John J. Engel: Great question, Guy. Good morning. Backlog only represents a piece of our business. Long-term multiyear alliance agreements for utility customers and multiyear national and global account agreements in industrial—there are also some in CSS—do not all get loaded in the backlog because we are loading in the actual POs. We may have a multiyear agreement but only load in the POs when we get them. That said, we have been reporting consistently the trend on backlog. The fact that that growth rate is materially higher than our sales growth rate bodes well for the balance of 2026, but it is also a look into 2027, which is the heart of your question. When you look at the projects that are in the backlog, a number of them also ship in 2027, and there are some longer-lead items that we are quoting for 2027–2028—like some transformer business in utility. Think about the trend and the relative growth rate of backlog versus sales; it speaks to the rising demand curve that our portfolio is capturing. Guy Drummond Hardwick: And just a follow-up: the 14% backlog growth in EES is the fastest in three years. How much of that was driven by data center projects? John J. Engel: We have not disclosed that number, but think about the math. Data centers for the gray space—EES’s exposure—was up 100% year over year but is only 10% of EES sales. You should think about that 14% as being a very healthy number for EES overall. Two of our three SBU leaders are new in their jobs in the last year. CSS, we promoted from within four quarters ago. EES, we hired a leader from outside who returned to the electrical industry; he has now been at the helm for three quarters and is off to an outstanding start, as is our CSS leader. Look at the momentum vector and the profit quality improvement of EES starting in Q3 last year, Q4, and now Q1. This is his third quarter since joining us. It is a big deal to have two of your three business leaders new in the saddle in the last year; we are seeing stepped-up execution in both businesses. Guy Drummond Hardwick: Thank you. Operator: The next question comes from Christopher D. Glynn with Oppenheimer. Please go ahead. Christopher D. Glynn: Thanks. Good morning. Exciting start to the year. Feeding off that last topic, you were going into the EES margin trends and execution there. The gross margin sequentially has been a really strong trend and now year over year standing out, and nice outperformance on the EBITDA margin this quarter, particularly from a normal sequential seasonal pattern that we have long seen. I think the normal seasonality of the 2Q profitability ramp from EES is sort of downplayed in the suggested enterprise margin for the second quarter. Are you seeing those seasonal margin swings level off, and is that moderating the 2Q forecast over the first quarter given that the baseline shifted upward in the first quarter? John J. Engel: First, on EES specifically, we are not guiding gross margins or op margins by SBU for Q2; we do not guide at that level. Relative to our overall outlook of flattish EBITDA margins for the enterprise in Q2, there are some interesting timing dynamics when you look at sequentials. I will hand it to our CFO to take you through. Unknown Speaker: Thanks, John. A few things to highlight. As I said in my prepared remarks, if you look at our incentive comp and performance last year versus this year, that is about 25 to 30 basis points of overall headwind in terms of the EBITDA margin at the enterprise level. Typically we see a step down in revenue Q4 to Q1, so a lot of the operating leverage that you see in the business in terms of sequential improvement in EBITDA margin was accelerated into the first quarter of this year. Sequentially, the improvement is muted. A couple of other things: we are in an inflationary environment, but we are doing a pretty good job managing that and passing along where appropriate. Also, with the growth of our data center business, we are making some very disciplined investments in facility expansion and capability expansions. That shows up on our cost side. Think about those as small step-function investments; we will see the benefit over several quarters and the operating leverage from that investment. That also mutes a little bit of the margin expansion year over year. Christopher D. Glynn: Great color. Thanks. One on WDCS: I think you mentioned that is now mix accretive in CSS. Curious to double click on that. I imagine if we look at your historical top five to 10 suppliers for the enterprise, there has probably been some swapping as WDCS has ramped so prolifically. Anything interesting there? John J. Engel: We thought it was important for investors to understand that WDCS—the exceptional growth we are getting and the way we are managing the margin profile of the business we are taking on—we are being very judicious in terms of what we bid and then applying our value proposition. We are getting very good margin pull-through; it is accretive, as outlined, to CSS. That is very encouraging given the strong secular growth trend. We have had some movement in the top five to 10 suppliers for overall WESCO International, Inc. I am not going to go through that on this call, but clearly a number of those suppliers are experiencing meaningfully greater growth given CSS growth rates. Look at our overall momentum as a company: third quarter in a row of double-digit growth for the enterprise. The rising tide we are creating with our suppliers is raising a number of their boats. Christopher D. Glynn: Appreciate the color, and talk soon. Thanks. Operator: The next question comes from Kenneth Newman with KeyBanc Capital Markets. Please go ahead. Kenneth Newman: Thanks. Good morning, guys. Welcome to the team, looking forward to working with you. Maybe first on pricing: the 3% net price—can you help quantify how much of that was from carryover benefits from last year versus incremental pricing that I know was not baked into the outlook? And any color you are seeing from supplier pushes on pricing as we exited the quarter? Unknown Speaker: Most of that is carryover benefit, because of the timing of when we get notices and the actual yield and what flows through. A couple of things to keep in mind: CSS is our largest business unit right now, in which the price impact has been small compared to the other two business units, and increasingly we are doing a lot of projects where pricing is negotiated with special pricing agreements. Just a comment as you think about our outlook. Kenneth Newman: Understood. Follow-up on data centers: really strong growth, particularly in white space. Can you contextualize what you saw in gray space versus white space? How much of the white space growth was a transition from projects you won in gray space a few years ago? And how should we think about the potential of that 100% growth in gray space this quarter transitioning to white space activity over the next 12 to 18 months? John J. Engel: Very good question. We are working the OneWESCO solution on all future bid opportunities. It may be for a portion of white space, gray space, or a piece of the power solution with UBS. We are pulling in all three SBUs and, irrespective of what the RFP is for, going in with our full value prop. That has excellent momentum. Specifically, the EES growth we got—the majority in Q1—was not linked to a prior CSS or white space win. The market today procures gray space and white space at different times in the build cycle, and power is addressed much earlier and by different decision makers. What that means for our mix in real time is we are not seeing a lot of that linkage yet, but we are putting a lot of shots on goal with our broader value proposition, and we are very confident that has huge needle-moving potential for WESCO International, Inc. going forward as we aggressively go after this secular trend. I could not be more pleased with the 100% growth in gray space in Q1 for EES. That shows we are putting an awful lot of shots on goal. It is roughly 20% of our overall sales mix, but still a very encouraging growth rate. Unknown Speaker: One minor point to add: as the new guy coming in, I have been super impressed with the coordinated effort across all three SBUs in our go-to-market on data centers. We really go to market as OneWESCO across white and gray space, but every customer buys differently, and we let the customer decide where our value proposition resonates. Kenneth Newman: Very helpful. Appreciate it. Operator: The last question today will be from Patrick Michael Baumann with JPMorgan. Please go ahead. Patrick Michael Baumann: Good morning. I had one on digital transformation. It seems like those costs are stepping up here in the first quarter in terms of what is outside the P&L. What are you spending that on—what are those costs for? What is the path and timing of the ERP rollout? Your confidence in execution on that? And what happens to those costs on day one when ERP systems turn on? How long does it take you to realize the benefits? John J. Engel: Our last fulsome update was at our Investor Day year before last. We outlined that program and laid out extensive activities remaining for design/build; we had not really begun deployment then. We have not given a fulsome update—which we will do at our next Investor Day—but I will address your question. Outstanding progress on the design/build; we continue to grind away at that and have begun deployment. We have a very small number of locations in each of the three businesses that have been deployed. That has been part of our agile design/build process with increasing capabilities being brought to bear and released into those locations. We had a notable milestone in the first quarter where we have one operation—one end-to-end P&L operation as part of CSS—fully deployed on our new digital platform. That occurred at the very end of the first quarter. Now we have an end-to-end operation with the latest instance and most capabilities deployed to date. We still have design/build activities that continue through this year and into the beginning of next year, but then our deployment phases in and accelerates, completely consistent with what we outlined at Investor Day. It is a phased deployment; unlike a knife-edge ERP transition that puts the enterprise at risk, we control the phasing to ensure we do not disrupt the business and can manage change effectively. It is our utmost priority that we do not disrupt our current business momentum. We have excellent improving momentum and want to execute against that, as evidenced by our first-quarter results. No change to program design/build/deployment schema. Huge milestone in Q1 with one end-to-end operation now deployed, and we are seeing how that is operating. The benefits will phase in over a multiyear period similar to what we outlined at Investor Day, where we said it is a two-speed EBITDA margin improvement profile going forward. We are grinding away to get operating margin expansion as we complete design/build and deployment, but once that is complete, there is a step-function increase in margin expansion because all the one-time investments are done. We very much look forward to those benefits. They are not hitting our P&L yet; that is all to come. Unknown Speaker: On your question on the disclosures, we provide a fair amount of disclosure in terms of what is excluded from EBITDA to get to adjusted EBITDA. Like most companies, the objective is to give you visibility to things that, like John mentioned, are one-time in nature. We will reevaluate that every year when we do our reporting, but you have full visibility. Patrick Michael Baumann: Thanks for that. My last question—this was asked earlier in the call, but bear with me: your data center revenue in the quarter was $1.4 billion. Annualized, you are at $5.6 billion, which would be up about 30% versus what you reported last year. In the quarter, you are up 70%. You have hyperscaler CapEx going up 70% this year. Help us understand what tails off. Is it some big projects or jobs that top out in the first quarter? The 20% growth is great, but in context of what you have been putting up, something seems like maybe it is project timing. Can you help us understand? Unknown Speaker: We addressed it earlier in the call, and you gave the answer in the last part of your question—project timing. That is the answer. It was project timing then; it is project timing now. With that said, it is an exceptional start to Q1. We are thrilled with the start. Patrick Michael Baumann: Thanks a lot. Best of luck. Operator: This concludes our question-and-answer session. We have addressed all your questions, so we are going to bring the call to a close. There is no one left in the queue, which is great. We have a lot of calls lined up for today and tomorrow. We look forward to speaking with you in the follow-ups. Thank you all for your support. It is very much appreciated. We expect to announce our second quarter earnings on Thursday, July 30. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the A. O. Smith Corporation First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Helen E. Gurholt. Please go ahead, ma’am. Helen E. Gurholt: Good morning, everyone, and welcome to the A. O. Smith Corporation First Quarter Conference Call. I am Helen E. Gurholt, Vice President, Investor Relations and Financial Planning and Analysis. Joining me today are Stephen M. Shafer, Chief Executive Officer, and Charles T. Lauber, Chief Financial Officer. In order to provide improved transparency into our operating results, we have provided non-GAAP measures. Free cash flow is defined as cash from operations plus capital expenditures. Adjusted earnings per share excludes the impact of restructuring and impairment expenses. Reconciliations from GAAP measures to non-GAAP measures are provided in the appendix at the end of this presentation and on our website. A friendly reminder that some of our comments and answers during this conference call will be forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include matters that we described in this morning’s press release, among others. Also, as a courtesy to others in the question queue, please limit yourself to one question and one follow-up per turn. If you have multiple questions, please rejoin the queue. We will be using slides as we move through today’s call. You can access them on our website at investor.aielsmith.com. I will now turn the call over to Stephen M. Shafer to begin our prepared remarks. Please turn to the next slide. Stephen M. Shafer: Thank you, Helen, and good morning, everyone. Before I discuss our first quarter results, I want to sincerely thank all A. O. Smith Corporation employees for their exceptional dedication and resilience during the first quarter. In particular, I would like to recognize our North American water heater team for their swift response to weather-related damage at one of our facilities, as they acted to ensure the safety of their colleagues while at the same time finding a way to recover from our production loss and continue to serve our customers well. I remain grateful for your dedication and teamwork, which continue to strengthen our company and our culture. Now moving on to our first quarter 2026 financial performance. Please turn to Slide 4. North America sales increased 1% to $753 million and Rest of World sales decreased 11% to $201 million, resulting in total company first quarter sales of $946 million, a decrease of 2%. Our EPS was $0.85, a decrease of 11% due to lower volume and transaction-related expenses recognized in the quarter for the Leonard Valve acquisition. Despite these headwinds, diligent working capital management helped to drive strong free cash flow performance in the quarter. Our China sales decreased 17% in local currency in the first quarter, which was in line with our expectations as well as broader market performance. With the discontinuation of most government stimulus programs and continued low consumer confidence, the water heater and water treatment markets remain challenged, especially the premium portion of the market where we compete. We expect this softness to persist. We also believe that our ongoing strategic assessment has created some uncertainty in the market and has delayed certain investments, putting further pressure on our business. We continue to make progress with our assessment and are moving with urgency to provide greater clarity for our customers and employees, with the goal of defining a clear path forward in the coming months. Now I would like to share some additional color on our North America business. North America water heater sales decreased 2% year over year. Production and shipping constraints caused by adverse weather, most notably at our Ashland City, Tennessee facility, combined with softer-than-anticipated residential industry demand early in the year, negatively impacted the quarter. As we discussed on our January earnings call, the wholesale residential channel continues to face challenges, including a soft market in new construction and continued initiatives by retailers to expand into serving the professional. Despite these pressures, we are encouraged by the stabilization of our market share in the wholesale channel in the first quarter, while recognizing there is still work to be done with more improvement to come. Additionally, we are pleased with our share performance within the retail channel and the strength of our retail partnerships. Our strong market leadership and balanced presence across both channels provide us with clear visibility into market trends, supported by robust data, analytics, and deep customer relationships. I am encouraged by the positive momentum we have going into the second quarter. North America boiler sales grew 2% compared to 2025, as residential boiler volume growth and carryover pricing benefit more than offset lower commercial volume. North America water treatment sales increased 1% in the first quarter. Ten percent growth in our priority dealer channel was largely offset by softness in the specialty plumbing wholesale channel. A cautious consumer environment led to flat growth in our more consumer-facing channels, with a general trend towards a trade down to lower-priced products. We expanded operating margin by almost 100 basis points; despite the slower start to the year, we continue to work on improving the profitability of this platform. Leonard Valve contributed $16 million to sales in 2026, led by strong performance. We exited the quarter with a strong backlog, and Leonard remains on track to achieve another year of double-digit growth. I will now turn the call over to Charles T. Lauber, who will provide more details on our first quarter performance. Thank you, and good morning, everyone. Charles T. Lauber: Please turn to Slide 5. First, I would like to highlight two items impacting the quarter. As Stephen noted, we had weather-related headwinds in the quarter, including damage to a portion of our roof at our Ashland City manufacturing facility. Because of our team’s swift response and our insurance coverage, we project minimal impact to our full-year performance. However, we estimate that production and shipping constraints, offset by insurance coverage on direct costs, negatively impacted our first quarter by approximately $0.04 per share. In addition, we acquired Leonard Valve on January 6 and, as a result, recognized $0.03 of transaction-related expenses in corporate expense for the quarter. North America segment first quarter sales of $753 million increased 1% against a tough comp, as carryover pricing benefits and Leonard Valve sales contributions were largely offset by lower residential water heater volumes and weather-related production and shipping constraints. North America segment earnings of $175 million and segment margin of 23.3% decreased by $10 million and 140 basis points, respectively, versus the prior-year period. Lower segment earnings and segment margin were primarily the result of lower residential water heater volumes and more than offset the earnings contribution from Leonard Valve. Carryover pricing benefits more than offset cost inflation in the quarter. 2025 benefited from pull-forward demand ahead of an announced price increase and a stronger mix towards higher-efficiency products. Moving to Slide 6. Rest of World segment sales of $201 million decreased 11% year over year due to continued weak consumer demand in China driving lower sales, which was partially offset by favorable foreign currency exchange. Rest of World first quarter 2026 segment earnings of $12 million and segment margin of 6.2% decreased by $8 million and 250 basis points, respectively, versus the prior-year period. The lower segment earnings and segment margin in 2026 were primarily due to lower sales volumes, which were partially offset by continued cost management in China. Please turn to Slide 7. We generated strong free cash flow of $119 million in the first three months of 2026, a significant increase over 2025, primarily driven by diligent working capital management and the timing of customer payments that more than offset lower earnings. Our cash balance totaled $204 million at the end of March, and our net debt position was $412 million. Our leverage ratio was 24.7% as measured by total debt to total capital, higher than 2025 due to the cash we borrowed under a new term loan used to acquire Leonard Valve. We continue to have significant available capacity for future acquisitions. Turning to Slide 8. In addition to returning capital to shareholders, we continue to drive organic growth through the development of innovative product offerings and productivity through operational excellence—two of our key strategic priorities. Earlier this month, our Board approved our next quarterly dividend of $0.36 per share. We repurchased approximately 700 thousand shares of common stock in the first quarter for a total of $51 million. We expect to repurchase $200 million of our shares during the full year 2026. Consistent with our focus on portfolio management, we continue to actively assess M&A opportunities that meet our strategic and financial criteria. Please turn to Slide 9 for 2026 earnings guidance and outlook. Our revised 2026 outlook includes an adjusted EPS range of $3.70 to $4.00 per share. This excludes a relatively net cash neutral North America water treatment restructuring and impairment charge of approximately $20 million that we expect to recognize in the second quarter. Key assumptions within our outlook include: steel costs have steadily risen throughout the first quarter, leading us to increase our full-year 2026 steel cost assumption to be a year-over-year increase of approximately 15% compared to 2025. In addition, due to recent oil price volatility, our transportation and certain material cost assumptions have also increased since our previous guidance. We now project that freight, non-steel material costs, and tariffs will increase our overall total company cost of goods sold by approximately 3% in 2026. Our guidance assumes oil prices and tariff levels will remain at a similar level to where they are today; we continue to monitor the situation. We maintain our estimate that 2026 CapEx will be between $70 million and $80 million. We continue to expect strong free cash flow of between $525 million and $575 million. Interest expense is projected to be between $30 million and $40 million, an increase over previous years due to the $470 million of additional debt incurred to acquire Leonard Valve. Corporate and other expenses are expected to be between $80 million and $85 million and include $6 million of transaction expenses associated with the Leonard Valve acquisition recognized in the first quarter. Our effective tax rate is estimated to be between 24% and 24.5%. We project our outstanding diluted shares will be 138 million at the end of 2026. I will now turn the call back over to Stephen M. Shafer to expand on our key markets and our 2026 top-line growth outlook for each business. Staying on Slide 9. Stephen M. Shafer: Thank you, Chuck. Within North America, our top-line outlook includes the following assumptions. While the residential water heater industry had a slower-than-expected start to the year, we maintain our view that full-year 2026 industry shipments will be flat to down as softness in new construction persists and proactive replacement remains steady. Due to a recent statement from the Department of Energy indicating a one-year enforcement delay of the October 6 commercial regulatory change, we revised our outlook and now expect less pre-buy activity in the quarters leading up to the original transition. We now project that U.S. commercial industry volumes will be similar to last year. In response to rising steel, freight, and other input cost inflation, we have announced price increases for most of our water heater and boiler products in North America, with increases varying by product, ranging from approximately 4% to 7%. We have seen some cost increases already leading into the second quarter, particularly within transportation. We expect to begin realizing the benefit of these announced price increases beginning in the third quarter. As always, we are maintaining ongoing communication with our suppliers, customers, and stakeholders as we address current market challenges while also implementing diligent cost management strategies. We continue to project our North America boiler sales to grow between 6% to 8% in 2026 due to pricing benefits and a strengthening backlog in commercial and residential boilers. We have reduced our 2026 sales guidance for North America water treatment to growth of 5% to 6%. The decrease in our outlook reflects the impact of cautious consumer behavior in our consumer-facing channels, which is approximately half of our business, where we have experienced soft demand as well as a shift toward lower-priced products. We are pleased with the progress of our priority dealer network expansion efforts and expect sales in that channel to achieve double-digit growth in 2026. Our guidance that Leonard Valve will achieve double-digit growth and contribute approximately $70 million in sales in 2026 is unchanged. Integration efforts are on track, and we are pleased with the reception we are receiving as we explore ways to go to market together. Moving to our Rest of World outlook and assumptions, we have updated our full-year guidance for China sales, which we now expect to be down low double digits in local currency compared to last year, with sales in Q2 down approximately 15% compared to Q1, as we balance channel inventories for the current environment. This revised guidance reflects our updated view of the China market, where we expect persistent headwinds throughout the year due to continued low consumer demand, severely limited government stimulus, and ongoing competitive pressures. We continue to advance our China assessment, evaluating strategic alternatives to strengthen our long-term competitive position. The evaluation is providing valuable insights into both the advantages and challenges facing our business. Many actions we have identified to improve the performance of our China business are pending the conclusion of our assessment, which is impacting our expected recovery timeframe. We are looking to provide greater clarity within the next few months. We project our India business, inclusive of Spirit, will have top-line growth of approximately 10%, and this is unchanged. Based on these 2026 assumptions, we expect total top-line growth of approximately 2% to 4%. We expect our North America segment margin to be approximately 24%, and Rest of World segment margin to be between 6% and 7%. Please turn to Slide 10. This morning, I would like to provide additional color on our operational excellence value creation opportunities. Our focus is to provide sustainable margin improvement in mid-cycle markets and protect our profitable growth in times of less market certainty. Over many years, we have looked to drive continuous improvement throughout our operations with our AOS operating system. Today, we are building on that foundation with new tools and making more strategic moves to help prioritize around our strengths and drive improved profitability. The tool sets we are now bringing to operations include enhanced stability for process intelligence and AI capabilities to drive better customer experiences at greater levels of productivity. Initial application examples include order management, warranty claims processing, and technical service support, where we are identifying opportunities, developing process improvement, and using AI agents to drive that improvement. Still early days, but we are excited by the potential of what we see. The streamlining of our North America water treatment business is an example of focusing on our strengths to drive more profitable growth. As we announced this morning, we are taking actions to continue improving our profitability and accelerate long-term growth through footprint optimization and brand rationalization. These steps are part of our ongoing water treatment strategy evolution and allow us to further focus on the areas where we expect to be most competitive going forward. We expect to recognize a restructuring charge of approximately $20 million in the second quarter and a projected annual savings of between $6 million and $8 million beginning in 2027. These exciting new tools that help us reimagine our operating processes and our continued strategic focus on prioritizing around our strengths are two ways in which we are bringing operational excellence to life at A. O. Smith Corporation. I look forward to sharing more details as this focus area for us matures going forward. Moving to Slide 11. Our team responded well when faced with pressure in several of our key markets in the first quarter. I am pleased with the market share improvement we saw in residential water heating, the double-digit valve sales growth that Leonard Valve contributed to the quarter, and the strong free cash flow achieved through diligent working capital management. With the strategic actions that we are taking, supported by our consistent operational discipline, I believe A. O. Smith Corporation will continue to strengthen its leadership position and be well equipped to capitalize on future opportunities. With that, we conclude our prepared remarks. We will now open the call for questions. Operator: Thank you. We ask that you please limit yourself to one question and one follow-up. One moment for our first question. Our first question will come from the line of Susan Marie Maklari with Goldman Sachs. Your line is open. Please go ahead. Susan Marie Maklari: Thank you. Good morning, everyone. Thanks for taking the questions. My first question is on the channel inventories in residential. You mentioned that you did have some pull forward around the pricing that you announced. Can you talk a bit more about how much you are seeing in there and how you are thinking about the channel going into the second quarter? And how we should think of the flow-through in the next couple of quarters as a result of that? Charles T. Lauber: Good morning, Susan. The reference that I made to pull forward in the first quarter was to last year, so we really have not seen any pull forward in 2026. By the way, the channel inventories we think are kind of in line with what we would expect coming out of the first quarter. Susan Marie Maklari: Okay. So you have not seen anything from the pricing you announced this year yet? Charles T. Lauber: Not meaningful. The price increase that we have is effective mid-May, roughly, so it is pretty early days. Susan Marie Maklari: Okay. That is helpful. And then, turning to commercial, you mentioned that the regulatory change got pushed out for a year. Can you give us more color on what drove that and how you are thinking about the demand there now for the balance of this year and then even into next year as the channel positions for that? Charles T. Lauber: Sure, Susan. The DOE commercial rule that was set to take effect in October has been challenged through the court system, and it has been held up so far, but it is pending and waiting to see if the Supreme Court will review it. We do not know whether the Supreme Court will take on that challenge or not. What the DOE issued late last week, because of that uncertainty and because we are getting closer to the October 6 date, was, in essence, a letter stating they would not be enforcing the rule until October 2027. However, that might also change as things play out both in the court system as well as how DOE thinks about the rule going forward. There is still a lot of uncertainty out there, but it has us feeling like it was more prudent to think that the industry may do less buy-ahead because of that announcement. Operator: Thank you. One moment for our next question. Our next question will come from the line of Matt J. Summerville with D.A. Davidson. Your line is open. Please go ahead. Matt J. Summerville: Thanks. A couple of questions. On the water treatment side of things, I was under the impression that getting out of the retailer big-box channel was the reset for that business, and it sounds like you are initiating yet another reset in water treatment. Remind us how big that business is and help us understand a little bit more around how we should be thinking about that looking ahead. Then, as a follow-up, you expect your China business to now be down low double digits. How does that sync up to what is actually happening in the market? Are you losing share? How do you justify the length of this review process with the potential that you are continuing to bleed share in that business because of how long the process has taken to unfold? Stephen M. Shafer: Good morning, Matt. The water treatment business is just over $250 million, roughly. Last time we talked about a reset, it was the exiting of on-the-shelf retail, and that was one ingredient of the reset. This is the next step of focus. It is really about leveraging our brands—focusing on our A. O. Smith Corporation brand more than some of the brands that we acquired—and rationalizing our manufacturing footprint. Think of it this way: in 2026, we are looking to expand margins by about 200 basis points to move to about 15% operating margins in North America water treatment. In 2027, with this next restructuring, we would expect an incremental couple hundred basis points. It is the next step in moving that profitability up. Regarding the China market environment and our performance, the whole market saw challenges in the first quarter, many of which we highlighted—stimulus has run its course and consumer confidence remains low—so it was a challenging quarter in the categories we participate in. From the third-party data we track, we did not lose meaningful share; we actually maintained our share in the first quarter, but it was certainly a down market condition. That environment is probably the biggest driver to why the assessment is taking a bit longer than we had hoped. There are still a lot of positive things coming out of the assessment for us. Third-party assessments validate that our brand and pricing power are very strong, and there is a lot of interest from potential partners. The dialogue is maturing, and I am hoping that in the coming months we will be able to provide clarity on our path forward, but it is occurring against a challenging market backdrop. Operator: Thank you. One moment for our next question. Our next question comes from the line of Tomohiko Sano with JPMorgan. Your line is open. Please go ahead. Tomohiko Sano: Hi. Good morning, everyone. We understand the guidance revision was mainly driven by external factors in China and North America. In this challenging environment, have you observed any changes in your market share across key regions? And as a follow-up, on Leonard Valve, how is the integration progressing, and are you on track to realize the expected synergies? Stephen M. Shafer: Good morning. In China, in the last few years there has been some market share loss, but in Q1 we do not see any meaningful market share loss; we think we are holding our own in a challenging market. Within the U.S., on the water heater side, we have stabilized our share position in the wholesale channel, which was a big focus over the last quarter. There is still more work to be done. On the retail side, we are very pleased with our share position and the strength of our partnerships. Regarding Leonard Valve, we are very pleased with the first quarter. It is a great fit with our portfolio and serves as the foundation for our water management strategy going forward. Integration is on track with the plan. Most of our opportunity is in ways to go to market together. We have been out talking to customers, and it has been very well received. Operator: Thank you. One moment for our next question. Our next question will come from the line of Joseph Nolan with Longbow Research. Your line is open. Please go ahead. Joseph Nolan: Good morning. I wanted to focus on the margin and price/cost outlook over the remainder of the year. In the second quarter, you will be feeling the impact of higher steel and freight costs, but it sounds like you are not expecting to get price benefit until Q3. Can you walk through margin cadence over the remaining quarters of the year? And as a clarification, on the commercial water heater industry outlook coming down to flat now, is that really just a reflection of the regulatory change, or are there other moving pieces? Charles T. Lauber: Sure. We were happy with our price/cost relationship in Q1; pricing overcame the costs we incurred plus a little bit of margin, so we are walking into the second quarter in a good position for the costs behind us. However, we are seeing incremental costs in the second quarter—transportation is up, diesel fuel is up, and steel costs continue to rise. We have an announced price increase that takes effect in the third quarter. So we will see a little pressure in Q2 before pricing benefits begin, and that should be overcome in Q3 and Q4 with the pricing we expect to have in place. We feel comfortable with our positioning but are watching costs closely, especially those related to oil and transportation. On commercial water heaters, the biggest driver of the outlook change to flat is the DOE regulatory timing and the related reduction in anticipated pre-buy. Operator: Thank you. One moment as we move on to our next question. Our next question comes from the line of Mike Halloran with Baird. Your line is open. Please go ahead. Mike Halloran: Good morning, everyone. Can you help put this in context on how you expect earnings to cadence through the year? The $0.03 from Leonard goes away, price/cost dynamics in Q2 are a little less favorable with more favorable in the back half, and timing around headwinds and demand dynamics—do you get a catch-up in Q2 from the weather? How does that key into the year? And on pricing, are you expecting any pull-forward of demand ahead of the 4%–7% price increases, and how do you think channel acceptance will go given the moving pieces in the water heater space? Charles T. Lauber: There are a couple of moving parts since our last outlook. Starting with China, Q2 is expected to be down roughly 15% from Q1, with decremental margins of 35% to 40%, so we expect a difficult quarter there. We expect to come out of Q2 with better balance of channel inventories; they are relatively the same as last year, but we would like to be leaner in this environment. In North America, costs are ahead of us in Q2 before we see pricing in Q3, which is a headwind to margin in Q2. On DOE, previously we would have expected a meaningful amount of pull-forward in Q2 and Q3; we have softened that, so commercial volume cadence is now expected to be pretty similar to other years with flat volume year over year. Overall, Q2 EPS is expected to be roughly 25% of our full-year guidance midpoint. That includes a little help in Q2 from some pricing pull-forward. We expect a solid performance in North America in Q2 based on a little pull-forward. The back half should be a little stronger on boilers—Q3 is always stronger—and China typically has its strongest quarter in Q4 after a muted Q1. So, stronger Q2 on the top line, some headwinds on cost, real headwinds in China, and more normalization in the back half. Stephen M. Shafer: On pull-forward ahead of the 4%–7% price increases, there is usually a little of that, and we work closely with our customers to navigate these transitions, serving them well while being smart operationally. Ultimately, we remain committed to keeping our customers competitive, even as we manage through cost pressures and market uncertainty. Operator: Thank you. One moment for our next question. Our next question will come from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is open. Please go ahead. Jeff Hammond: Hey, good morning. It seems like you are just cutting EPS $0.15, but a lot of the macro assumptions are moving the wrong way. Can you talk about offsets to that—price, restructuring savings, or catch-up from the plant issue—that would mitigate the EPS impact? And on dynamics between wholesale, retail, and this price increase: have you seen other players announce similar pricing around steel and fuel inflation, and any changes you are seeing in the wholesale channel? Charles T. Lauber: We had a little bit of catch-up on the plant issues—not a lot—but that will help a bit in the second quarter. From our last guidance, the big changes were China and the DOE policy statement. Teams continue to look at cost management in China and North America as we watch the market play out. Costs are volatile right now with oil and transportation. That is the biggest driver we are keeping an eye on. Stephen M. Shafer: We will not comment on competitor pricing, but historically we have been successful offsetting costs over time, and we feel good about our positioning. It remains a competitive environment, and we would expect the industry to experience similar cost inputs. Our commitment is to make sure we keep our customers competitive. Operator: Thank you. One moment for our next question. Our next question will come from the line of Adam Farley with Stifel, on behalf of Nathan Jones. Your line is open. Please go ahead. Adam Farley: Good morning. Following up on the commercial water heating regulatory impact, does that change how you are planning to ramp capacity for that commercial change? And more broadly, can you update us on capacity plans for this year and into next year? Also, on tariffs, was there any incremental change to the gross tariff impact with recent rule changes, and what is contemplated in the guide? Stephen M. Shafer: We were prepared for the transition from a capacity standpoint and made investments to get ready. If demand is pushed out and customers delay orders, and if the regulatory rule goes into effect later, we will be ready with those investments. Many have been made, and some that were still in front of us we are delaying until we have certainty of the demand need. On tariffs, we saw some relief in certain areas and increases in others. Overall, the tariff outlook is maybe net neutral to slightly favorable, but that is overshadowed by other costs related to oil, diesel fuel, transportation, and resilient steel prices. Net-net, it is a bit of a cost headwind, which is why we have pricing out there. Operator: Thank you. One moment for our next question. Our next question comes from the line of Andrew Alec Kaplowitz with Citi. Your line is open. Please go ahead. Analyst: Hi. Good morning. This is Natalia on behalf of Andy Kaplowitz. First, you held the outlook for boilers despite lowering expectations across most other product categories. Can you unpack what you are seeing in underlying demand—how much is volume versus pricing? And second, as you think about capital deployment, how are you viewing the current M&A pipeline, particularly in terms of opportunities within your core business versus adjacency areas? Charles T. Lauber: Our boiler growth for the year has a big price component, including carryover pricing from last year. Q1 was a little softer on commercial, which we highlighted, but we see orders coming up, and that business has typical seasonality. We remain confident in the 6% to 8% growth forecast. Commercial is catching up based on the order book, and price remains a big component of the growth. Stephen M. Shafer: There are opportunities to strengthen our core via M&A, alongside significant organic investment to maintain our leadership. Getting scale and profitability in our water treatment platform has been a big focus for us over the last seven to eight years, and there are still a few opportunities to strengthen that business through M&A. A big focus for us is on the water management platform. Leonard Valve, which we closed in January, is in that category, and we think it is probably the richest area for us from an M&A standpoint as we build out and expand in water management. Operator: Thank you. I am showing no further questions. I would like to hand the conference back over to Helen E. Gurholt for closing remarks. Helen E. Gurholt: Thank you for joining us today. We look forward to updating you on our progress in quarters to come. Please mark your calendars to join us at four conferences this quarter: Oppenheimer on May 5, KeyBanc on May 27, Stifel on June 2, and Wells Fargo on June 9. Thank you, and enjoy the rest of your day. Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.
Operator: Good morning. My name is Cath, and I will be your conference operator today. At this time, I would like to welcome everyone to the Illinois Tool Works Inc.'s First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. And if needed, one follow-up question. Thank you. Erin Linnihan, Vice President of Investor Relations, you may begin your conference. Erin Linnihan: Thank you, Cath. Good morning, and welcome to Illinois Tool Works Inc.'s First Quarter 2026 Conference Call. I am joined by our President and CEO, Christopher A. O’Herlihy, and CFO, Michael M. Larsen. During today's call, we will discuss Illinois Tool Works Inc.'s first quarter 2026 financial results and provide an update on our outlook for full year 2026. Slide two is a reminder that this presentation contains forward-looking statements. Please refer to the company's 2025 Form 10-K and subsequent reports filed with the SEC for more detail about important risks that could cause actual results to differ materially from our expectations. This presentation uses certain non-GAAP measures, and a reconciliation of those measures to the most directly comparable GAAP measures is contained in the press release. Please turn to slide three, and it is now my pleasure to turn the call over to our President and CEO, Christopher A. O’Herlihy. Christopher? Christopher A. O’Herlihy: Thank you, Erin, and good morning, everyone. As you saw in our press release this morning, Illinois Tool Works Inc. delivered a solid start to the year with results that were in line with our expectations. In the first quarter, we continued to outperform our underlying end markets, delivering revenue growth of 5% and a 12% increase in GAAP EPS to $2.66. Through disciplined operational execution, we expanded operating margin by 60 basis points to 25.4%. We continue to capitalize on positive demand trends in our CapEx-related segments, with organic growth in Welding up 6% and Test & Measurement and Electronics up 5%. While our consumer-facing businesses contended with challenging end market dynamics, the Illinois Tool Works Inc. team executed at a high level on the profit drivers within our control. Our Enterprise Initiatives contributed 120 basis points to the bottom line, driving that 60 basis point overall margin improvement. We were equally encouraged by our continued progress on Illinois Tool Works Inc.’s organic growth agenda, specifically on customer-backed innovation, or CBI as we call it. We are positioning the company to consistently deliver 3% plus CBI contribution to revenue by 2030. As we have noted before, this is the key driver of our ability to consistently deliver 4% plus high-quality organic growth at the enterprise level. As we look ahead and based on our solid Q1 results, we are raising our full year GAAP EPS guidance by $0.10. Our new guidance midpoint of $11.30 incorporates a slightly lower tax rate and represents 8% year-over-year growth. Our full year organic growth projection of 1% to 3% remains unchanged, reflecting current demand levels adjusted for seasonality. For the full year, we expect operating margin expansion of approximately 100 basis points powered by our Enterprise Initiatives. Notably, all seven segments are projected to deliver positive organic growth and margin expansion in 2026. As we have said before, Illinois Tool Works Inc.’s unique business model, resilient portfolio, and “do what we say” execution demonstrated daily by our colleagues worldwide ensure we are well positioned to deliver robust financial performance in any environment and remain invested in our long-term strategy through any business cycle. As order activity continues to strengthen across several of our end markets, our production capacity, new product pipeline, and best-in-class customer-facing metrics position us to take market share and fully capitalize on these positive demand trends that we are now beginning to see. With that, I will now turn the call over to Michael to provide more detail on the quarter and our guidance for 2026. Michael? Michael M. Larsen: Thank you, Chris, and good morning, everyone. In Q1, the Illinois Tool Works Inc. team delivered a solid operational and financial start to the year. Starting with the top line, revenue growth was 4.6% driven by organic growth of 0.4%, a 3.9% contribution from foreign currency translation, and 0.3% from an acquisition. As Chris said, we were particularly encouraged by positive demand trends and strong order activity in our CapEx and semi-related segments. The combination of our product line simplification, or PLS, efforts and delayed sales to the Middle East reduced our organic growth rate by approximately one percentage point. For context, our annual sales to the Middle East represent approximately $100 million, which is less than 1% of Illinois Tool Works Inc.'s total annual sales. On the bottom line, operating margin improved by 60 basis points to 25.4%, with Enterprise Initiatives contributing 120 basis points. Incremental margins were approximately 40% in the quarter, and we expect both operating margin and incremental margins to move higher as the year progresses. Free cash flow grew 6% with a 69% conversion rate reflecting typical first quarter seasonality. We also repurchased $375 million of shares during the quarter. Overall, a solid start to the year with revenue growth of 5%, earnings growth of 12%, and some encouraging demand trends that bode well for the balance of the year. Please turn to slide four for a brief update on our Enterprise Initiatives. Since 2012, our strong execution on the Enterprise Initiatives has been the most impactful driver of margin improvement at Illinois Tool Works Inc. The 120 basis points contribution this quarter from our strategic sourcing and 80/20 front-to-back activities was in line with our expectations, and we remain on track for a full year impact of approximately 100 basis points independent of volume. Looking ahead, we expect these initiatives to continue to drive meaningful gains through 2030 as we track toward our 30% margin goal. Now let us move to the segment highlights. Starting with Automotive OEM, where revenue increased 4%. While organic revenue declined 1%, we outperformed global automotive builds which were down more than 3%. On a regional basis, North America was down 5%, while Europe was flat. China declined 3%, but significantly outperformed automotive builds, which were down 10%. Builds in China are projected to meaningfully improve sequentially in the second quarter, including double-digit growth in EVs where we are particularly well positioned. At the segment level, we continue to expect our typical 200 to 300 basis points of outperformance versus builds, which are now expected to be down approximately 2% for the full year. Operating margin improved by 170 basis points to 21%. Turning to slide five, Food Equipment delivered revenue growth of 2%, with organic revenue down 3%. Strength in Service, which grew 3%, partially offset a 6% decline in Equipment. North America was down 5%. A slower start than expected on the institutional side, particularly in the education end market, was partially offset by growth in restaurants, including QSR, which was up double digits, and Service, which grew more than 4%. Encouragingly, since January, we have seen gradual improvement in institutional demand trends, and at the Food Equipment segment level, we continue to expect positive organic growth and margin improvement for the full year. International business was flat and is projected to deliver positive organic growth starting in Q2. Test & Measurement and Electronics had a standout quarter, with 10% revenue growth and 5% organic growth, the highest growth rate in three years as the green shoots we talked about last quarter begin to look more like a sustainable recovery. Through this recent down cycle, our divisions stayed invested in their long-term growth strategies, including capacity and new products, and they are uniquely positioned to meet growing customer demand and fully capitalize on the growth opportunities in front of them. As a result, Electronics grew 10% this quarter, and the semi-related businesses, which represent about $500 million in annual revenues or about 15% of the segment, grew more than 15%. Looking ahead, market indicators like increasing fab utilization, encouraging customer signals, strong response to new products, as well as strong order activity all support the view that the positive demand trends that we are seeing in this segment today are sustainable in the near term. Moving on to slide six, Welding delivered another strong top line performance as revenue grew 7% with organic growth of 6%. Equipment grew 8% with a strong contribution from new products. North America was the primary growth engine, up 8%, with mid-single-digit growth in filler metals. The growth was broad based, with mid- to high-single-digit growth across our businesses including in both industrial and commercial. International was down 6% due to a difficult comparison of plus 14% in the year-ago quarter. Operating margin was best in class at 32.1%. Polymers & Fluids delivered 5% revenue growth and organic growth of 2% driven by new products and robust market share gains, primarily in automotive aftermarket, which grew 3%. Polymers was flat against a tough comparison of plus 6%, and Fluids was also flat. Operating margin expanded 150 basis points to 28%. Turning to slide seven, in Construction Products, revenue was up 3%, and encouragingly, this quarter marked the best organic growth performance in four years. Overall, organic growth declined 1%. North America was flat as our residential and renovation business delivered positive organic growth of 1%. In this segment, we remain well positioned for the inevitable housing recovery down the road. Europe was down 3%, and Australia/New Zealand was down 2%. Specialty Products revenue was down 1%, with organic revenue down 5% due to the impact of PLS activities and delayed Middle East sales. Despite the top line pressure and with the margin tailwind from recent PLS activities, the segment expanded operating margin by 40 basis points to 31.3%. With that, let us turn to slide eight for an update on our guidance. As we have said before, Illinois Tool Works Inc. is well positioned to deliver meaningful progress on both the top and bottom line in 2026. On the top line, we are maintaining our total revenue growth projection of 2% to 4% and organic growth projection of 1% to 3%. Per our usual process, this is based on current levels of demand adjusted for typical seasonality and prevailing foreign exchange rates. On the bottom line, we continue to expect operating margin to improve by approximately 100 basis points to a range of 26.5% to 27.5% as Enterprise Initiatives contribute approximately 100 basis points. We continue to expect that price/cost will be modestly accretive to margins after factoring in recent tariff changes and all known material cost increases, offset by corresponding pricing and supply chain actions. Our projection for incremental margins in the mid- to high-40s remains unchanged. Incorporating our first quarter results and the lower effective tax rate projection for the year of 23% to 24%, we are raising our GAAP EPS guidance by $0.10 to a new range of $11.10 to $11.50, representing 8% growth at the $11.30 midpoint. In terms of cadence, we are projecting a 48/52 EPS split between the first and second half of the year, which is less back-end loaded than 2025 and our previous guidance. Finally, we expect free cash flow conversion to exceed 100% of net income, and we are on track to repurchase approximately $1.5 billion of our shares in 2026. In summary, we are heading into the balance of the year with positive momentum on both the top and bottom line. All seven segments are projecting positive organic growth and further improvement in their industry-leading margins. Overall, Illinois Tool Works Inc. is well positioned to deliver on our guidance, including solid organic growth with best-in-class margins and returns. And with that, Erin, I will turn it back to you. Erin Linnihan: Thank you, Michael. We will now open the call for questions. Cath, will you please open the line and then inform callers on how to get back into the queue? Operator: Thank you. At this time, I would like to remind everyone, to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Andrew Alec Kaplowitz with Citigroup. Your line is open. Close enough. How is everyone doing? Christopher A. O’Herlihy: Good morning. Good morning. Andrew Alec Kaplowitz: Good morning. I know it is early in the year, but when you think about growth in the segments, is it fair to say that your CapEx businesses such as Test & Measurement and Welding are trending ahead of your expectations? Maybe consumer and Specialty, I guess, and Food Equipment was more institutional or a little below, and they just kind of net out. How are you thinking about growth by segment versus your original expectations? Christopher A. O’Herlihy: Yes. So, Andy, as we have indicated, we expect all seven segments to show positive organic growth this year. I think you have characterized the first quarter pretty well. What we saw is those CapEx-related segments like Test & Measurement and Welding, with Test & Measurement, obviously in semiconductors and Electronics, as Michael indicated, grew more than 15%. And I would say with continued order strength here in Q2. Welding, it has been a tough environment for a few years. We grew 6% in Q1, a mixture of strong order activity that again continues into Q2 and continued improvement in CBI. And I think encouraging on Welding, the strength was pretty broad-based. It was not just in industrial markets, which we started seeing in Q4, but it also, in Q1, bled into the commercial platforms as well. So certainly on those CapEx-related markets, strong order activity. And then on the more challenged consumer-facing markets, even though they are challenged, we continue to outgrow those markets. If we look at Automotive as a prime example where we again demonstrated a couple of hundred basis points of improvement over the market, similarly in Construction and even in areas like Polymers & Fluids, where in automotive aftermarket we showed a very healthy growth rate versus retail point of sales in automotive aftermarket. So I think it is a tale of two markets right now. We are seeing the industrial CapEx markets very strong with great order activity. But even in those consumer-facing markets, which are improving a little bit, we are outgrowing those markets. Andrew Alec Kaplowitz: It is helpful, Chris. And maybe a similar question on margin for you or Michael. You reiterated the incrementals for the year in the mid- to high-40s. Are you getting there at all differently? Because I mean, Test & Measurement and Auto look good, but Food Equipment obviously was lower. Was that just lower absorption in the quarter and it gets better from here? Are you seeing increased inflation impact you at all? How do you think about that? Michael M. Larsen: Yes. I think, Andy, overall, the incremental margin assumptions and the operating margin assumptions are unchanged from what we were when we gave guidance on our last call. We continue to expect incrementals in the mid- to high-40s, and we expect to improve operating margins by 100 basis points this year. Seasonally, Q1, as we talked about on the last call, always starts out a little lower, and then margins and incrementals improve sequentially as we go through the year. We also expect, based on current run rates, that we will see some increased operating leverage as we go through Q1 to Q2 and into the back half of the year. So overall, the margin expectations, as Chris said, are that every one of our segments will improve operating margins this year. Obviously, the ones that are benefiting from some positive demand trends in particular should be expected to maybe outperform a little bit on those incrementals. Just a word on Food: I would say certainly an anomaly in that segment in terms of the margin performance and the incrementals in the first quarter. It is really an isolated challenge in one particular end market on the institutional side, and it relates back to the month of January. We did see improving demand trends in Food Equipment, as well as in that particular end market, as we went through February, March, and April. But it is certainly something we will continue to keep a close eye on. I would just add while we are on margins that while some of the more growth-challenged businesses that Chris talked about—Polymers & Fluids, maybe Automotive, Construction—continue to execute at a very high level, you see that despite some of these top line challenges, they continue to expand margins, which is really encouraging. Andrew Alec Kaplowitz: Very helpful. Operator: Your next question comes from the line of Jamie Lyn Cook with Truist Securities. Your line is open. Jamie Lyn Cook: Hi. Good morning. I guess this is my first question, can you just help us understand, last quarter it sounds like you were pretty positive on short-cycle momentum, things improving, your confidence level today with some of the uncertainty related to the war with Iran and macro and whether you saw any change in the cadence of sales throughout the quarter or into April? And then my second question, can you just give us an update on CBI, the contribution expected for 2026, and whether you are contemplating other parts of the portfolio that were having a harder time with CBI so perhaps there are opportunities to refocus to certain product lines which are being more successful versus not? Thank you. Michael M. Larsen: Thank you, Jamie. Maybe I will take the first part and then hand it over to Chris for the CBI question. In terms of overall confidence, let us start with the context that we came in right along with our plan for the first quarter. We talked on the last call that we expected a step down from Q4 to Q1, and we actually, on the top line, did a little bit better than that. So I would say if anything, we are more confident today as we sit here. I think it is important to mention that our guidance today is based on the current levels of demand that we are seeing in these businesses. In some of these businesses, maybe Welding and Test & Measurement in particular, we are seeing order rates that are meaningfully higher than the organic growth rates that those segments put up in the fourth quarter and the first quarter. That is not included in our guidance today. Again, based on our past practice, this is based on current run rates. And while there may be a little bit more of a challenge in a place like Food Equipment, which we just talked about, we believe as we sit here today we have more than enough strength in those CapEx-related and semi-related segments to offset any challenges there. And like I said, we are more confident in our organic growth guidance of 1% to 3% today than we were on the last call. One last word on Automotive: automotive did have a slower start in China. Automotive builds in China were down 10% in Q1, and they are projected to be flat in Q2. So we are expecting a pretty meaningful ramp from Q1 to Q2 with sequential growth in the low- to mid-single digits. We expect meaningful sequential margin improvement of about 100 basis points, and we expect incremental margins to improve. If you look at the cadence that we outlined—you have the EPS split 48/52—we just did 23% in Q1, which is exactly what we said on the call last time. That would imply that for the second quarter, the EPS contribution would be about 25% to the full year. And as we sit here today, we feel very, very confident in our ability to deliver both Q2 and the full year. Christopher A. O’Herlihy: And then, Jamie, on your question on CBI and the opportunity profile, CBI can look a little different segment to segment, division to division. What I would say is that we have strong momentum right across the company on CBI, and we are really encouraged by the progress that we are making in every segment. We continue to see increasing strength in our pipeline of new products. It is one of the reasons why even in some of these slower growth markets we are outperforming those markets. We have had several successful new product launches this year across the portfolio. I would call out segments like Welding, Test & Measurement, Food Equipment, and Automotive. We delivered a 40 basis points CBI yield improvement in 2025, and based on what we see in Q1, we are tracking really well to deliver incremental improvement in 2026 on the path to 3% plus by 2030, if not before. Patent filings continue to be strong—up 18% in 2024, 9% in 2025—and we see additional increases in 2026. As we have said before, patent filings continue to be a very strong leading indicator of CBI at Illinois Tool Works Inc., given the customer-backed nature of our innovation, which means that more often than not, patent filings are there to protect important customer solutions. Increased patent activity is often pretty well correlated to future revenue growth. So we feel very positive about the engagement, enthusiasm, and followership around CBI, and we are now starting to see this come through in patent filings and yield. Thank you. Operator: Your next question comes from the line of Tami Zakaria with J.P. Morgan. Tami Zakaria: Hi. Good morning. Thank you so much. I have one question, and it is rather longer-term. As you think about your Food Equipment business, how do you view the proliferation of GLP-1 drugs and its impact on demand from restaurants and the hospitality industry? I see you had really strong growth in the quarter from restaurants—you mentioned QSRs—but just longer term, is GLP-1 on your radar as you plan for this segment over the coming few years? Christopher A. O’Herlihy: I would say, Tami, it is not something we are giving a lot of thought to. I would say GLP-1 is early days, and I would also say that if you look at Food Equipment, restaurants represent a smaller portion of our business, and particularly QSR represents a smaller portion of our business. The biggest portion is institutional. We have a sizable restaurant business, but a smaller piece is in QSR, which is probably more directly impacted. So I would say it is early to tell. It is not something that is on our radar at this point. But as you mentioned QSR, it is not a huge part of our business, although it is growing nicely. Michael M. Larsen: And I would just add, we have said before Food Equipment is one of the most fertile segments from an innovation standpoint. There is so much room for customer-backed innovation, and we would expect that to continue to only accelerate from here and offset any pressures like the ones that you are talking about. Tami Zakaria: Understood. Thank you. Michael M. Larsen: Mhmm. Operator: Your next question comes from the line of Stephen Edward Volkmann with Jefferies. Your line is open. Michael M. Larsen: Hi. Good morning, everybody. I was going to stick with Food as well because that comment kind of caught my attention. Do you think that that market is actually turning? Or is there something that you are doing that is kind of Illinois Tool Works Inc.-specific there? I will leave it there. Christopher A. O’Herlihy: I think it is hard to say the market is turning, Steve. I do think that we have some interesting innovations going on in that space. As Michael mentioned, the Food Equipment space is very effective from an innovation standpoint. We have new product launches in all product categories in 2026, really driven around critical customer pain points like energy, water, and labor savings, and all those trends are very relevant in QSR. I am pretty sure that a large part of our QSR growth is coming from innovation. Michael M. Larsen: And I would just add that we always talk about the strength of the Service business. While QSR, in particular, can be a little bit lumpy, the Service business is more of an annuity-type business. Our ability to put up 3%, 4%, 5% organic growth on a consistent basis at attractive margins kind of buffers some of that lumpiness that you might see in the businesses that you are talking about. Stephen Edward Volkmann: Got it. Okay. Thank you for that. And then, Michael, it sounded like there was a margin thing that happened in the quarter that was very specific. Should we assume 2Q is kind of back to normal? Michael M. Larsen: Yes. I think there is really nothing unusual about Q1, other than the slow start maybe in Food Equipment. If you look at how the quarter progressed, January started out a little bit slower because of Food Equipment, and then we improved from a growth standpoint in February and got even better in March. I think March organic was up 4%, and in April we are off to a really good start with organic growth. If you look at our full year guidance range of 1% to 3%, we are probably trending towards the high end of that range here in April. On margins, we expect a sequential improvement from Q1 to Q2. We just did 25.4%. We would expect more than 100 basis points of improvement sequentially from Q1 to Q2, so that would put it somewhere around 26.5%, and further improvement into Q3 on margins and as well in Q4. From a growth standpoint, from Q2 to Q3, revenues based on run rates again are about the same in Q3 and Q4. But that is all that we need to deliver some meaningful organic growth towards the higher end of the range in the second half of this year. Hopefully, that gives you a little bit of context. Stephen Edward Volkmann: Very much so. Appreciate it. Thanks. Michael M. Larsen: Sure. Operator: Your next question comes from the line of Julian C.H. Mitchell with Barclays. Your line is open. Julian C.H. Mitchell: Hi. Good morning. Good morning. Michael, sorry, there are a couple of other calls going on. But just to clarify your comment on the top line just now, were you referring to total company there in terms of the confidence of getting to the higher end of the range? Obviously, we had some questions on you were just over flat in Q1, and you have got 2% pegged at the midpoint for the year, and you tend to just guide with run rate, as you say. Is there anything happening on price later in the year that comes in because of cost inflation that gets the growth moving up? Michael M. Larsen: I think, Julian, as we have said before, the first quarter was right in line with our plan. The organic growth rate was as we described it on the last earnings call, and how the year is projected to unfold is based on our typical seasonality. In terms of price, since you asked, we had a plan assumption going into the year around price as well as price/cost. Given some of the inflationary pressures that we are seeing, just like everybody else, our divisions have reacted from a price standpoint. We now expect a little bit more price, and that will start to come through primarily in the second quarter and then carry forward into Q3 and Q4. So I think it is fair to say there might be a little bit more of a price impact there. But broadly, we are very close to our original plan as we sit here today, including the organic growth projection of 1% to 3%. Nothing has really changed relative to our guidance other than, as we said, we have seen some really positive demand trends in two segments in particular. Julian C.H. Mitchell: That is helpful. Thank you. And when we are looking at the operating margin guidance, you are off to a good start versus that 70 basis points or so acceleration that is guided for margins at the midpoint for the year as a whole. If we are thinking about some of the margins that were weakest—I think Food Equipment you have dealt with already—anything in Welding that we should think about over the balance of the year, the margins there perhaps picking up steam? And company-wide, is operating leverage fairly steady as you move through 2026? Michael M. Larsen: What I can tell you, Julian, is that as we sit here today, we would expect every segment to improve margins in Q2 relative to Q1. And then we would expect sequential improvement to those margins again in every segment in Q3 and into Q4. As you mentioned Welding specifically, those are best-in-class operating margins by a fair margin. So you would expect to see less improvement in the segments that have margins at or above 30%. You should expect to see a lot more improvement in places like Test & Measurement. There is a little bit of impact from some recent acquisition activity, but as volume and price begin to pick up as we go through the year, you are going to see some really solid operating leverage in the Test & Measurement business as well. Christopher A. O’Herlihy: Julian, I would just add that we have really good line of sight on at least 100 basis points of improvement with our Enterprise Initiatives. Andrew Alec Kaplowitz: That is helpful. Thank you. Operator: Your next question comes from the line of Bank of America. Analyst: Morning. Look, I think you have been very clear on expecting improvements in organic growth into the second quarter, calling out specifically for the Food Equipment segment. That is a positive. How about the Specialty Products segment? Michael M. Larsen: Yes. I think there was a little bit of an impact from the Middle East—kind of delayed sales in the aerospace business—which is sitting on significant orders and backlog. Those sales have been delayed. That and the combination of PLS efforts that are somewhat front-end loaded this year reduced the overall organic growth rate by three points in Specialty in the first quarter. We would expect that growth rate in Specialty to improve from here. I would say the equipment businesses in Specialty are performing very well, and then in some of the more consumer-oriented businesses there are some challenges, as you are well aware, as Chris talked about. There are places like the medical business that is growing leaps and bounds at this point in time. So it is really all those factors offsetting each other. As we said, we expect the Specialty business to deliver positive organic growth this year and meaningful margin improvement based on what we are seeing in the businesses that make up Specialty as we sit here today. Thank you. Analyst: And then with the Supreme Court's ruling against the AIPA tariffs, several manufacturing companies have filed for refunds. Where do you stand in that process for yourself? Christopher A. O’Herlihy: With respect to tariff recovery, given our “produce where we sell” philosophy, the direct impact of tariffs was largely mitigated at Illinois Tool Works Inc., and to the extent that there was an impact, we were able to recover this in price. In this regard, tariff recovery is not something that is on our radar, I would say, and we certainly do not have anything in our guidance for it. Analyst: Sure. Operator: And that concludes today's session. Thank you for participating in today's conference call. All lines may disconnect at this time.
Operator: Good morning, and welcome to Industrial Logistics Properties Trust's first quarter 2026 financial results conference call. I would now like to turn the call over to Kevin Barry, Senior Director of Investor Relations. Please go ahead. Kevin Barry: Good morning, and thank you for joining Industrial Logistics Properties Trust's first quarter 2026 earnings call. With me on today's call are President and Chief Executive Officer, Yael Duffy, Chief Financial Officer and Treasurer, Tiffany R. Sy, and Vice President, Marc Krohn. In just a moment, they will provide details about our business and quarterly results, followed by the question and answer session with sell side analysts. Please note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Also note that today's conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws, including guidance with respect to certain second quarter and full year 2026 financial measures. These forward looking statements are based on Industrial Logistics Properties Trust's beliefs and expectations as of today, 04/30/2026, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission which can be accessed from our website ilptreit.com. Investors are cautioned not to place undue reliance upon any forward looking statements. In addition, we will be discussing non GAAP financial measures during this call including normalized funds from operations or normalized FFO, adjusted EBITDAre, net operating income or NOI, and cash basis NOI. A reconciliation of these non GAAP measures to net income is available in our financial results package, which can be found on our website. Lastly, we will be providing guidance on this call including estimated normalized FFO and adjusted EBITDAre. We are not providing a reconciliation of these non GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all. I will now turn the call over to Yael. Yael Duffy: Thank you, Kevin, and good morning. To begin, I would like to highlight the announcement we made last week that our consolidated joint venture successfully priced $1.6 billion of fixed rate interest only debt at an attractive interest rate of 5.71%. This outcome was achieved despite geopolitical headwinds and capital markets volatility. It also speaks to the strength of our high quality portfolio, the creditworthiness of our tenants, and the depth of the banking relationships our manager, The RMR Group, has built. As Tiffany will cover shortly, this financing takes out the JV's floating rate and amortizing debt, substantially strengthening its capital structure, insulating it from interest rate swings, and driving stronger cash flow. As a result, all of Industrial Logistics Properties Trust's consolidated debt will now be fixed rate and non amortizing, at a weighted average interest rate of less than 5.5%. Turning to our results, I am pleased to report another quarter of strong earnings growth that outpaced our expectations, which was supported by continued leasing momentum across our portfolio. Same property cash basis NOI increased more than 4% year over year and normalized FFO grew more than 60%, demonstrating the meaningful progress we have made reducing financing costs and driving rent growth. We leased 862,000 square feet at a weighted average rent roll up of 26.3%, marking our sixth consecutive quarter of double digit rent growth. Renewals accounted for approximately 70% of the activity, reflecting continued strong tenant retention and portfolio stability, with consolidated occupancy of 94.6%. Today, 8.1 million square feet, or 11.5% of Industrial Logistics Properties Trust's total annualized revenue, is scheduled to expire by 2027, which provides us a substantial runway to capture embedded rent growth and drive organic cash flow. Currently, our leasing pipeline stands at 6 million square feet with more than 2 million square feet already in advanced stages of negotiation or lease documentation. We are especially pleased to share that we anticipate fully leasing the 535,000 square foot vacancy in Indianapolis in June, accomplishing a key 2026 initiative for the company. Before I turn the call over to Tiffany, I want to underscore the momentum we have built across fronts: a meaningfully strengthened capital structure, continued double digit leasing spreads, and a healthy pipeline of embedded mark to market opportunities still available to us. Looking ahead, we believe we have a clear path to continued cash flow growth and delivering value to our shareholders. I will now turn the call over to Tiffany R. Sy for the financial results. Tiffany R. Sy: Thank you, Yael, and good morning, everyone. Yesterday, we reported first quarter normalized FFO of $22 million, or $0.33 per share. These results exceeded the high end of our guidance by $0.20 per share, driven by one time revenues and fees totaling $1.1 million. Normalized FFO grew 16% on a sequential quarter basis and 63% compared to the same quarter a year ago. Same property NOI was $90.3 million, same property cash basis NOI was $87.4 million, and adjusted EBITDAre totaled $87 million, each increasing on a year over year and sequential quarter basis. Turning to our balance sheet, we ended the quarter with cash on hand of $100 million and restricted cash of $86 million. Our net debt to total assets ratio declined modestly to 68.8% and our net debt leverage ratio improved to 11.6 times from 11.8 times. Last week, we priced $1.6 billion of five year fixed rate, interest only mortgage financing for our consolidated joint venture at 5.71%. We expect to close the loan on or about May 8, and plan to use the proceeds to refinance the joint venture's existing $1.4 billion floating rate loan and $[inaudible] of fixed rate amortizing debt. The new debt is secured by the same 90 mainland properties as the existing borrower. With this refinancing, our consolidated joint venture will unlock nearly $20 million in annual cash flow by eliminating its amortizing debt and the need to purchase interest rate caps. Additionally, all of Industrial Logistics Properties Trust's consolidated debt will be fixed rate, limiting our exposure to market interest rate volatility, with a weighted average interest rate of 5.48% and no debt maturities until 2029. Turning to our outlook, we introduced full year guidance in our earnings presentation issued last night, in addition to the quarterly guidance we have been providing. For the second quarter of 2026, we expect interest expense of $61.5 million, including $59 million of cash interest expense and $2.5 million of non cash amortization of deferred financing fees, adjusted EBITDAre between $85.5 million and $86.5 million, and normalized FFO between $0.31 to $0.33 per share. For the full year 2026, we are guiding to interest expense of approximately $245 million with cash interest of $234.5 million and non cash interest of $10.5 million, adjusted EBITDAre between $344 million and $349 million, and normalized FFO of between $1.27 to $1.34 per share. This guidance reflects the impact of our consolidated joint venture's refinance. It also assumes our vacant property in Indianapolis is leased in June 2026 and does not include the lease up of our Hawaii land parcel. In closing, we are pleased with the meaningful progress that Industrial Logistics Properties Trust has made over the past year, refinancing our floating rate debt and enhancing cash flow. As we look ahead to the remainder of 2026, we are focused on building on this momentum, advancing our growth initiatives, and creating long term value for our shareholders. That concludes our prepared remarks. We will now open the call for questions. Operator: Thank you very much. We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. Our first question comes from Mitchell Germain with Citizens Bank. Please go ahead. Mitchell Germain: Thank you very much. Can you provide some sensitivity from the top to the bottom end of the guidance range, please? Meaning, what will impact the bottom, and what factors take you to the high end of the range? Tiffany R. Sy: Sure. Sometimes we have one time reimbursements or one time fees. They are usually not very large, so that accounts for the $1 million range in the guidance. Mitchell Germain: Got it. Okay. That is helpful. Obviously, interest rate is pretty much fixed at this point. So maybe provide some perspective on the Indianapolis lease. I know this has been a big priority strategically. Do you believe it becomes income paying in June? How should we think about that, and maybe provide some perspective on the economics? Are we looking at rents going higher? Yael Duffy: Sure. We anticipate the lease to be signed in June. There will be a minimal free rent period of four months, so we will start seeing the cash in the back half of the year, and it will be at a roll up in rent. Mitchell Germain: Great. And then last question from me: with regards to the recent debt, does it offer more flexibility from a covenant perspective with regard to your ability to potentially look to sell some assets? And then more broadly, do you think that asset sales might become more of a strategic priority? Tiffany R. Sy: There is a 24 month lockout period in the new debt. Yael Duffy: I will add that with the leasing of this property in Indianapolis, it will allow us flexibility on the $1.16 billion debt to be able to look to sell properties in that pool. So while we might not be able to, in the short term, have dispositions within that mountain of debt, we will have greater flexibility now that we have gotten this Indianapolis lease completed. Mitchell Germain: Thanks, and I appreciate the guidance. Kevin Barry: Thanks, Mitch. Operator: Thank you. Our next question comes from John Massocca with B. Riley. Please go ahead. John Massocca: Good morning. Maybe can you walk us through what the $1.1 million of one time items were in the quarter? And is that why guidance is calling for a step down in 2Q versus 1Q at the midpoint? Tiffany R. Sy: Yes, that is exactly why. There was $150,000 of percentage rent that gets trued up. That happened this quarter. And then we also had $450,000 of a one time remediation fee related to a move out that has already been released. John Massocca: Okay. And the percentage rent true up, is that something that could hit in any given quarter, or is that usually a 1Q item? Tiffany R. Sy: It is always a 1Q item. We just do not know what the amount will be, or even if it will be incremental to us. John Massocca: And post the debt transaction, now that your balance sheet is pretty set, how are you thinking about utilizing the cash balance today? You talked a little bit about dispositions, maybe using that cash to pay down debt potentially. Or would you even potentially look into the acquisition market? Just curious how you are thinking of managing the cash outstanding, given there is a little more certainty from a debt side of your balance sheet. Yael Duffy: We are evaluating all of our options right now. We want to make sure that we have cash on the balance sheet to address our tenants' needs. We have a couple of tenants we are in early discussions with who are looking at potential building expansions that they want us to partner with them on, so we want to make sure that we have that cash available to us. It is early stages. We will see where we shake out and then go from there. John Massocca: I know those are potentially unique situations, but how do you think about a return threshold if you get back into the market of deploying capital? Tiffany R. Sy: We are certainly in a better position today than we were even a year ago, so that is something we are always considering with the Board. John Massocca: Was I asking about property acquisitions or even other investments? If you were to get back into the market, how would you view the current cap rate environment versus where you would want to deploy capital? Are there things out there today, especially given it would probably be coming from cash on hand rather than newly raised capital? Yael Duffy: Given where our leverage is today, I do not see us looking to acquire any properties at least in the short term, unless it is a very specific or opportunistic situation. John Massocca: And lastly, the CapEx spending was down a little bit. I know 1Q can be a relatively weak period seasonally for CapEx spend, but is that a more typical run rate, or was the current quarter a bit of an anomaly? Tiffany R. Sy: The current quarter was an anomaly. Q1 can be down sometimes. That is not what we are forecasting going forward. John Massocca: That is it for me. Thank you very much. Kevin Barry: Operator, I believe that concludes our Q&A. Yael Duffy: Thank you for joining today's call, and we look forward to meeting with many of you at the NAREIT conference in June. Please reach out to Investor Relations if you are interested in scheduling a meeting with Industrial Logistics Properties Trust. Operator, that concludes our call. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Sonic Automotive, Inc. First Quarter 2026 Earnings Conference Call. This conference call is being recorded today, Thursday, 04/30/2026. Presentation materials, which accompany management’s discussion on the conference call, can be accessed at the company’s website at ir.sonicautomotive.com. At this time, I would like to refer to the Safe Harbor statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information, or expectations about the company’s products or market, or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties are detailed in the company’s filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company’s Current Report on Form 8-K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive, Inc. Mr. Smith, you may begin your conference. David Smith: Thank you very much and good morning, everyone. Welcome to the Sonic Automotive, Inc. first quarter 2026 earnings call. I am David Smith, the company’s Chairman and CEO. Joining me on today’s call is our President, Mr. Jeff Dyke; our CFO, Mr. Heath Byrd; our EchoPark Chief Operating Officer, Mr. Thomas Keen; and our Vice President of Investor Relations, Mr. Danny Wieland. I would like to open the call by thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. It is because of our outstanding teammates that Sonic Automotive, Inc. was just recognized as one of America’s most trustworthy companies by Newsweek. We believe our strong relationships with our teammates, guests, and manufacturer lending partners are key to our future success. And as always, I would like to thank them all for their continued support and loyalty to the Sonic Automotive, Inc. team. Heath Byrd: Earlier this morning, Sonic Automotive, Inc. reported first quarter financial results, including record first quarter total revenues of $3.7 billion, up 1% from the previous year, and record first quarter total gross profit of $598.8 million, up 6% year over year. First quarter reported GAAP EPS was $1.79 per share. Excluding the effect of certain items as detailed in our press release this morning, adjusted EPS for the first quarter was $1.62 per share, a 9% increase year over year. Moving now to our first quarter franchised dealership segment results, we generated reported revenues of $3.1 billion, flat year over year, and same-store revenues of $2.9 billion, down 4% year over year. This same-store decrease was largely driven by a 10% decrease in new vehicle retail volume, offset partially by a 3% increase in used vehicle retail volume year over year. It should be noted that first quarter new and used vehicle volume faced tough year-over-year comparisons due to the pull-forward of consumer demand for vehicles in the prior year ahead of the U.S. auto import tariffs announced in March 2025. Reported franchise total gross profit for the first quarter was up 5% and was flat year over year on a same-store basis. Our fixed operations gross profit and F&I gross profit set quarterly records, up 10% and 7% year over year, respectively, on a reported basis. These two high-margin business lines continue to increase their share of our total gross profit pool, once again contributing over 75% of total gross profit for the first quarter, mitigating the potential headwinds to new vehicle volume and margin to our overall profitability while also leveraging our SG&A expenses more efficiently than incremental vehicle-related gross profit. Same-store new vehicle GPU was $3,002 per unit, down 4% year over year. On a reported basis, new vehicle GPU was $3,144 per unit, up 2% year over year. On the used vehicle side of the franchise business, same-store used GPU decreased 4% year over year to $1,533 per unit, but increased 11% sequentially due to typical seasonality in the used car business. Our F&I performance continues to be a strength, with first quarter record reported franchise F&I GPU of $2,670 per unit, up 9% year over year and up 2% sequentially. Turning now to EchoPark, adjusted segment income was an all-time record $12.6 million, up 25% year over year, and adjusted EBITDA was an all-time record $18.6 million, up 18% year over year. For the first quarter, we reported EchoPark revenues of $581 million, up 4% year over year, and all-time record gross profit of $68 million, up 6% year over year. EchoPark segment retail unit sales volume for the quarter increased 3% year over year, and EchoPark segment total GPU was a first quarter record $3,502 per unit, up 3% year over year and up 2% sequentially from the fourth quarter. With momentum on our side, we believe we are well positioned to resume a disciplined cadence of EchoPark store openings beginning in late 2026 while also initiating targeted investment in brand marketing as a key component of our long-term growth strategy. We expect to begin funding these brand marketing efforts this year, potentially increasing advertising expenses by $10 million to $20 million, with the majority of that investment occurring in the second half. Turning now to our Powersports segment, we generated first quarter record revenues of $41 million, up 19% year over year, and first quarter record gross profit of $10 million, up 19% year over year. First quarter combined new and used retail volume was up 25% year over year. And we are beginning to see the benefits of our investment in modernizing the Powersports business and the future growth opportunities it may provide. We also welcome our new team members from Space Coast Harley-Davidson, Treasure Coast Harley-Davidson, Falcon’s Fury Harley-Davidson, Raging Bull Harley-Davidson, and San Diego Harley-Davidson. The acquisition of these five dealerships provides us coverage in key riding states of California, Florida, Georgia, and North Carolina. This acquisition further reaffirms our commitment to strategic growth within the powersports segment and diversifies our geographic footprint and seasonality. Finally, turning to our balance sheet, we ended the quarter with $770 million available liquidity, including $381 million in combined cash and floor plan deposits on hand. Our focus on maintaining a strong balance sheet and liquidity position allows us to strategically deploy capital in a variety of ways to deliver value to our shareholders. During the first quarter, we repurchased approximately 2.1 million shares of our common stock for approximately $136 million, representing a 6% decrease in outstanding share count from 12/31/2025. In addition, I am pleased to report today that our Board of Directors approved an additional $500 million share repurchase authorization and an 8% increase to the quarterly cash dividend to $0.41 per share, payable on 07/15/2026 to all stockholders of record on 06/15/2026. We continue to work closely with our manufacturer partners to understand the potential impact of tariffs on vehicle production, pricing, and volume forecasts, vehicle affordability, and consumer demand going forward. The full-year 2026 outlook and guidance on Page 13 of our investor presentation considers these uncertainties and represents our current expectations for 2026 financial results. As always, our team remains focused on executing our strategy and adapting to ongoing changes in the automotive retail environment while making strategic decisions to maximize long-term returns. This concludes our opening remarks and we look forward to answering any questions you may have. Thank you. Operator: We will now open the call for questions. Our first question is from Jeff Licht with Stephens Inc. Jeff Licht: Good morning. Thanks for taking my questions. Was curious if you could just talk a little bit about EchoPark. It appears that you are having some success there. Now you are talking about the optimism about opening some new stores. I am curious, is there anything about this particular environment where obviously supply is pretty tight, it seems like used demand might be a little higher than new demand. Anything about this environment that plays into EchoPark’s business model? And then what is it that gives you confidence to open new stores? Jeff Dyke: On a same-store basis, new car prices were over $60,000 in the first quarter. That is an all-time high for the first quarter. Our total store was over $61,000. So with the increase in new car pricing, it is making affordability a big, big issue and that is going to put wind in the sail for pre-owned. So it gives us a lot of confidence. We also are buying a lot more cars, as a percentage of our overall business, off the street, both on the franchise side and EchoPark. I believe we approached the 40% range in the first quarter, and that makes a big difference. So margins are better, we are selling more cars, we have access to inventory. We are growing, we are executing at a high level, and it gives us a lot of confidence as we move into Q2 to see the same kind of growth or even better for EchoPark on a year-over-year basis. And we are seeing it on the franchise side too, maybe as a percentage growth not quite to the extent, but in Q2 the business is really strong. And it is being driven by just amazingly high new car pricing in the marketplace. Heath Byrd: And let me add one point. I think it is really important to understand the value of us getting the non-auction sourcing, and the team has done a great job. Keep in mind, when we started we were 90% auction and 10% other sources, and now, as Jeff mentioned, we are 40%. Those vehicles make about $1,200 more in GPU than the auction vehicles, so that has been a big driver. The team has found ways to source vehicles in multiple ways rather than the auction. That is a big, big part of it. Jeff Licht: And could you talk a little bit about, I know you have somewhat integrated or tried to use your franchise dealership as a strategic asset for EchoPark. And it is notable that you did a positive same-store sales in franchise for used as well. Can you maybe just talk about the kind of the symbiotic relationship between those two and how you are using that, you know, the source for the entire enterprise? Jeff Dyke: Yes. We have never done that before. We started here in the first quarter, really the later end of the quarter, and so it is not that many cars yet, a few hundred overall, but it is going to grow. And we are buying nearly new cars out of the franchise side of the business, which obviously is helping the franchise, so it helps the franchise side of the business. Bringing those cars into EchoPark, the margins are decent, back-end margins are great, and we are selling the heck out of them, in particular on the East Coast. They have been really, really strong. The Atlanta market has been really strong in this arena, and we will continue to do that with more brands. We have been really focused on Toyota and Honda, but we will do that with more brands as we get better at this. It is very new for us, and again, just a few hundred units would be included in those numbers that you are looking at for the quarter. Jeff Licht: Thanks very much. I will get back in the queue and best of luck. Jeff Dyke: Thank you, sir. Thank you. Operator: Our next question is from John Babcock with Barclays. John Babcock: All right, thanks. First question, I was wondering if you are able to quantify the impact of weather. And apologies if I missed, but whether it is an impact on overall dollars or if there is some way to estimate the impact on volumes? Any color there would be useful. David Smith: Yes. Thank you. This is David Smith, and honestly, I am not being a smart ass, but we really do not allow weather reports in our business, in our meetings, and we just push through. And so we really do not focus on that at all. John Babcock: Okay. Totally understand. Next question, I was wondering, are you guys seeing OEMs pull forward at-lease maturities? And if so, is that benefiting EchoPark at this point? Jeff Dyke: 100%, they are doing that, in particular around BEV. And we are seeing that on the East Coast and the West Coast, and we are selling those vehicles. It is helping both the franchise side and somewhat at EchoPark. We are keeping most of those on the franchise side of the business. But definitely, the pull-aheads are helping in BMW, Mercedes. BMW has done a particularly really good job with it, and we expect that to continue as we move forward, in particular around BEV because there are so many more BEV lease returns coming back here over the next six months between now and the end of the year as those leases mature. John Babcock: Those are primarily happening with the luxury brands? Jeff Dyke: Yes. John Babcock: Okay. Interesting. And then just last question. I was wondering if you might be able to provide some color on where you plan to open the EchoPark stores, whether it is in the same region as your existing stores or if you are planning to expand into other areas? Jeff Dyke: Our early expansion is primarily in Florida and Texas. John Babcock: Okay. Thank you. Operator: Our next question is from Chris Pierce with Needham & Company. Chris Pierce: Hey, good morning. Just one on EchoPark. I know you are guiding to sub- to high-single-digit unit gains. I just was curious, I mean, you guys have performed better on front-end GPU, talked that you performed better last year on vendor leverage, seeing healthy OpEx leverage. But I guess I just want to understand what would be the real driver of unit growth? And again, I am not trying to poo-poo high-single-digit unit growth in a flat market. I am also not trying to compare you to someone putting up 40% unit growth, but I am just kind of curious what would be a real driver of mid-double-digit unit gains. That sounds like what you are doing. Jeff Dyke: Yes, 40% is certainly an impressive number. Now look, at the end of the day, we are executing our playbook and our process. We sold well over 30 units per sales associate in the month of March, for example, and we are executing, we think, at a high level. Those gains will continue through this year. That is what is giving us the confidence to open more stores as we move to the end of the year and then on into 2027. We are very comfortable with where we are, proud of our team for the growth that they have, and we look forward to that growth continuing. Heath Byrd: And I will add, one of the things that would drive the unit growth is awareness. That is precisely why we are investing in the brand starting this year. David Smith: Yes. And Jeff noted before, he mentioned Atlanta. We have had all-time record sales in Atlanta, and we think that a big part of that is because the market is much more aware of the EchoPark brand. Danny Wieland: And one final point on that, this is Danny, on the earlier point on non-auction sourcing improvements, we were up about 15% in terms of our sales in the first quarter year over year that were non-auction sourced. As Heath added, it is about a $1,200 better GPU on those vehicles, but it also gives us upside to grow that volume without being dependent on, or at risk of, pricing on the wholesale auction front. Our wholesale auction volume was actually down year over year in the first quarter, and some of that was strategic given the 7% wholesale auction price increases we saw in Q1. We took advantage of it in the late fourth quarter, but when pricing gets too high, we really push on this non-auction source path, and that will only benefit from further investment in brand awareness and sourcing from customers as we go forward. Chris Pierce: Can you, Heath, could you please drill down on Atlanta a little bit? Like, how should we think of Atlanta in terms of cohort age of store versus Denver, marketing spend in Atlanta versus other regions, and give us some sort of support beams as to what you are doing there that is driving the growth you talked about? David Smith: Yeah. This is David. One of the things we did, you may have seen, is that we got the naming rights for Atlanta Motor Speedway. It is now EchoPark Speedway. We have seen in the numbers that has been a major impact on customer awareness of the brand. And we found since 2014, when we opened our first stores in Denver, that people know about the EchoPark brand and they search for us and once they experience it, and their friends experience it, it is why we have the number one guest experience in the industry as rated by reputation.com. That really pays off. So we have been really focused on that. And as we said, we are going to start growing now, but we wanted to make sure we can maintain that world-class guest experience and the kind of volume that, like Jeff mentioned, in March our teammates were able to deliver. We had some teammates who sold 50 or 60 cars in just the month of March and maintained that high-level guest experience. That is something that, thinking of the future, is going to benefit the brand. Jeff Dyke: The awareness in the Atlanta market has more than doubled since the sponsorship, and that really gave us the leg to say, okay, we need to really make some investments here from a marketing perspective, from a brand awareness. We just were not ready till this year. And we really spent a lot of time getting our house in order, buying more cars off the street, executing at a high level. You have seen we put quarters back to back to back to back together if you are following EchoPark closely in the growth, and that growth is going to accelerate. And in particular, as we start opening stores, it will have the hockey stick acceleration. We are very excited about that opportunity, but we are going to be very prudent and focused. We have done this before, and this time we are going to make sure that we get this absolutely right. And so we are real excited about getting some stores open towards the end of the year. Heath Byrd: And I just want to highlight one more thing on this. The fact that we have sales associates that are selling 30-plus vehicles per month per associate on average, that efficiency and the process that we have, that is one of the reasons that you see for this quarter EchoPark’s SG&A as a percent of gross was lower than 70%. Our semi-fixed expense structure there, coupled with the process that allows that kind of efficiency, is just going to get better. And you will see, as we have said from the beginning, that EchoPark has the ability to leverage that SG&A because of the way it is set up. It is very unique to have associates averaging that number of vehicles per month. Danny Wieland: And Chris, one more point on the Atlanta market specifically. As operational points supporting the brand awareness and the gains we have made there, our unit volume in the first quarter in Atlanta was up about 25% year over year, and our total GPU was up $225 per car. So we are seeing more traffic, we are monetizing those incremental vehicles at a better rate. Some of that non-auction sourcing mix we talked about obviously benefits us there. We really think that is an incremental proof point in the early stages on brand awareness, and reaching consumers and letting them know who EchoPark is and what our guest experience is will only help continue to benefit those growing markets, but also our more mature markets in Houston, Dallas, and Denver as we go forward. David Smith: And one last thing: you will see as we move forward and we open new EchoPark stores that our cost basis in those stores is going to be less than we have spent historically, which is going to make it far easier to become profitable a lot faster in those locations. Chris Pierce: Great. Thanks for all the details. Appreciate it, and good luck. Jeff Dyke: Yes, sir. Thank you. Operator: Our next question is from Rajat Gupta with JPMorgan. Rajat Gupta: Great. Thanks for taking the question. Pretty good execution, congrats on that. Had a question on parts and service. Acknowledge that you do not like to talk about weather. So, irrespective, the growth is pretty strong despite some of the tough warranty comps. I am curious how we should think about growth there. I know you are sticking to your framework, but maybe if you could unpack that for us a little bit—what is really helping that business? Any change in processes, hiring cadence? How should we think about growth there for the rest of the year? Jeff Dyke: This is Jeff. Look, we told you this two years ago. We were on a mission to hire technicians—with plus 400 technicians since we started that mission. We continue to hire techs. We are executing at a really high level in our playbooks. We have a value service program that we are very focused on to drive more customers into our drive, which then allows us to upsell off of those value services we brought into the service drive. The used business is growing, so that helps internals. Just overall, we are executing at a very high level. And mid-single digits is a good number, maybe up a little bit above that. It is across the board, it is not one market or another, it is not one brand or another. We have some warranty challenges in comparison to last year. I think we had with our Honda brand we are off about $1 million in gross there. But we will drive more customer pay. We are obviously not in control of warranty, but we will drive more customer gross into those brands, into that brand. It is a bright future for fixed operations at Sonic Automotive, Inc. It is going to get better as we go on this year. It is going to get better and stronger in 2027, 2028, towards the end of the decade. There is a lot of business out there for us to get. Remember, customers buy new cars, but half of them do not go to a dealership—not just Sonic, anybody—because the industry is priced high and processes were crazy and this reputation. I think we have cleaned all that up. Our service CSI scores are fantastic, and that is all playing into the results that we are seeing, and they are just going to get stronger as we move forward. And one additional opportunity there is it is very ripe for AI. Heath Byrd: Our AI team is just going in now and is starting to look at the processes in fixed. Obviously, it is a very high-margin part of our business, but we think we can be more efficient with the technology. So I think there is opportunity in that area as well. Rajat Gupta: Got it. That is helpful. Jeff Dyke: We just broke $90 million in gross in a single month in the first quarter. That was an all-time record for us for a single month, and that is going to continue to get bigger. We have short-term goals of being over $100 million a month in fixed operations gross, and we are hopeful to see a month this year do that and then, ongoing, we will be above that. So there is just huge growth there and great opportunity for us. As we started to look at the business differently—more of a high-volume, high-traffic-count business than we have in the past—there is just too much opportunity and too many guests out there in our AOIs to take advantage of that. So that is what we are focused on. Danny Wieland: And just a couple of other points there. As you might have seen in the release, we grew customer pay at a 5% rate on a same-store basis, and warranty was at a 7% rate. So that was even an uptick in growth rate versus the fourth quarter—warranty was only 2% up year over year in the fourth quarter. We are continuing to see benefits there as long as that warranty tailwind persists, but we are really focused on customer pay. We got 40 basis points of margin expansion out of it. On an all-in basis, customer pay is growing at 9%, warranty is up 15% including the acquisition. So we have got some year-over-year upside in terms of the comparisons as we get into the back half and lap those JLR acquisitions from last year. Rajat Gupta: Right. That is very clear and helpful. I wanted to just ask a broader question around pricing dynamics. Maybe a twofold question. One is, you have this one big nationwide competitor of yours that is undergoing a pretty well-telegraphed price cut. I am curious if you are feeling it. Are you seeing it? Have you reacted to it? Any thoughts on that would be helpful. And then second question, you know, Carvana yesterday talked about some risk in the second quarter from just narrowing wholesale-retail spreads. I know that you have much lower day supply and you are improving consumer sourcing too. But curious if that is something to keep in mind as far as your business goes. Jeff Dyke: As far as the pricing goes, we have not felt that. It is isolated to VINs and marketplaces, and that has not tripped any wires over here at all. So we are not feeling that. I am going to let Danny attack the color on the spread. Danny Wieland: It is pretty normal seasonality. Obviously, prices went up in the first quarter. Jeff Dyke: We were buying cars early in the first quarter when wholesale prices were down. As we go into the second quarter, we are seeing that shrink—the gap between the two. It is not going as rapid as last year. Danny Wieland: But it is closing. Jeff Dyke: So that is real. But we still expect nice growth with EchoPark in the second quarter, and we are going to continue to expand—better growth than we had in the first quarter. Margins are hanging in there better both on the franchise side and EchoPark side in April, better than they normally do from a pre-owned perspective, which is very good. We will see how supplies hold up as we move in. They always tighten and we are always trying to shrink our day supply at this time of the year after the big first quarter and tax season. We will see how things go, but the pre-owned business should be nice and solid as we move throughout the rest of the year. Danny Wieland: And again, to our actual performance in the first quarter, our average selling price at EchoPark was down about 2% sequentially from the fourth quarter, but wholesale pricing was up 7% as we went through the first quarter. Yet our GPU expanded—our vehicle-related GPU only expanded about $200 sequentially. So we were seeing narrowing retail pricing on a mix basis anyway, increases in wholesale pricing, but still saw expansion in GPU again because of the way we buy, because of that non-auction sourcing mix. That should only give us more insulation against those movements, as well as, as Jeff said, recognizing the normal seasonality of used car pricing movements in January, February, March, and then on the downswing in April, May, June, post tax refund season. Rajat Gupta: Got it. That is helpful. Maybe just last one on balance sheet. Very surprised by the big buyback here in the first quarter. Curious, how should we think about leverage here? You obviously increased your authorization. Maybe another way to ask is, is the ramp-up in buyback just to signal that you are not really worried about the macro or the cycle here and you just feel like with the growth in parts and services, the trend in EchoPark, there are just more good things to come from an EBITDA perspective, and you feel comfortable buying back this equity right now? I was just really surprised given some of the choppiness we hear about in the macro. Thanks. David Smith: Yes, I mean, we obviously would not have bought back the shares if we did not feel confident in our business. And, as always, we want our investors to know that we are going to be looking at all our different options of where we place our capital and look for the best return. I think the key to what you were asking is what are we going to do going forward. We are going to look at various opportunities like the Powersports acquisition that we just made. That was a great opportunity and offered great ROI, and we are going to continue with that—whether it is share repurchases or debt reduction or acquisitions. It just depends on what we see in the market. Heath? Heath Byrd: Yes. I will just say, we feel like we have a very strong balance sheet at a little over two turns for our leverage ratio. And with a lot of liquidity, that gives us the ability to invest in multiple areas. As you have just seen, we were able to purchase five JLR stores last year, five powersports dealerships this year, at the same time buy back 2 million shares, increase the dividend by 8%, invest in our business as it relates to AI, buy real estate, and enhance the facilities. And finally, we are still in great shape to expand EchoPark. I think the balance sheet is allowing us to do that. We are completely comfortable where we are in the leverage ratio, we have it all cooked in and understand the impact, and are very comfortable that we have a lot of dry powder to invest in all of these areas. Jeff Dyke: And I think if you look at the last six or seven quarters that we have strung together, showing the execution and the discipline in this company like we have never shown before, that gives us a real high level of confidence. It does not matter if there is COVID or tariffs or weather or whatever else is going to come—Godzilla is going to come out and blow up our cars—we are overcoming all of that. I think that is a big testament to our team. The tenure that we have on this team is amazing. We had our board meeting yesterday, and we were going through our tenure in this company. It is just incredible. We look forward to the great remainder of the year and a very bright future for Sonic. Rajat Gupta: Awesome. Great. Thanks for all the color and good luck. Jeff Dyke: You bet. Thank you. Operator: Our next question is from Bret Jordan with Patrick Buckley: Hey, good morning, guys. This is Patrick Buckley on for Bret. Thanks for taking our questions. As you think about the longer-term outlook on franchise new GPUs, how are you thinking about the new floor there? Some peers have recently suggested a landing spot towards the upper end of their previous targets. Have your thoughts changed at all? Jeff Dyke: We did not change guidance there. We are seeing a little bit of shrinkage on front-end in April for new, but it is going the other way for pre-owned. I think we are fine in the range that we gave you for the year. Mix moves around a little bit—if you are selling more domestic than normal or more Honda than normal, we get a little drop in our front-end margin. But our F&I numbers are so good in our franchise stores. Our F&I numbers in the first quarter were up $230 a vehicle, which is just fantastic, and we expect that to continue to grow as we move throughout the year. So the total all-in margin, I think we are going to be just fine, and it may move around a little bit due to mix. You know, Mercedes sells more or less, or BMW more or less, then Honda comes in or Ford comes in—the margins are a little different. But our F&I numbers are so strong that it balances it all out. I think we will be fine with our guidance that we gave you for 2026. Patrick Buckley: Got it. And then on BMW, we have heard some talk of delayed new product timing there. Has there been any notable disruptions or impact due to that delayed product change this year? Jeff Dyke: No. They have been doing a fantastic job. They communicate well and have done an amazing job managing through this, as all of our manufacturer partners have. There have been no issues. We need to watch affordability and entry-level models in some of the luxury brands—that is an important topic to study and watch. But you start getting past four quarters in a row now we are past the $60,000 mark. I do not see that changing in the second quarter. Third quarter, they are going to pass on the tariff expenses to the consumer. Prices are going up—it helps the used car business. We will see how much elasticity is in the new car pricing. Something is going to have to happen if volume really slows off as days’ supply starts growing, and then you will have a margin compression issue. I just do not see that happening this quarter or next—maybe a little bit due to change in mix for us. But overall, I think it will be nice and steady as she goes. Patrick Buckley: Got it. That is all for us. Thanks, guys. Jeff Dyke: Thank you. Operator: Our next question is from Alex Perry with Bank of America. Alex Perry: Hi, thanks for taking my questions here and congrats on the execution. I just wanted to ask if you have seen any impact from the war—any change in new or used vehicle sales trends as we moved into April? And could you maybe help us on the cadence of the monthly comps in the quarter on the new side? David Smith: Thanks, Alex. It has been really pleasantly surprising—the resilience of the consumer—and they have just continued to show demand. You have seen in our numbers they are continuing to do business with us. Despite the uncertainty, it has really been fantastic to see. Hopefully soon this major conflict will be over, and I think we will go into the summer months with some great results. Jeff Dyke: Yes. If anything, BEV units from a pre-owned perspective—we are selling a lot more of those. The pull-aheads are helping, and that is a big win in our sales right now. Otherwise, we would have some overhang with that. In particular, the larger stores are doing a great job with that—BMW, Mercedes, they are doing a really good job. Other than that, the business has been good. Cadence-wise, January was amazing—it was just an unreal January. If you want to talk about weather, maybe that slowed us down a little bit after January, but it was just a fantastic January and a really good February. We started comping against the tariff pull-aheads in March, and you did that all of March really and the first two weeks or so of April—10 days of April—and then the comps will get a lot easier as we move into May and June. So we will see some flip around in our year-over-year numbers; we will start heading into the positive direction. If you compare March and the first two weeks of April against 2024 and 2023, we look fantastic on a year-over-year basis. That is kind of behind us now. You are going to get a little bump when we get to the September timeframe and we bounce against the BEV pull-ahead from that time frame, but it ought to be smooth sailing other than that for the rest of the year. Alex Perry: That is really helpful context. And then, you mentioned in the deck consolidation opportunity in powersports. Is that a place where you will continue to add doors? What are you seeing there that gets you excited? Do you expect it to be on the Harley side and the motorcycle space or more traditional powersports? Would love to hear how you are thinking about that segment. Thanks. David Smith: Yes. Thanks for the question. We have been really, really pleased—a big shout out to our powersports team. They have done an outstanding job. As I mentioned, modernizing the powersports industry—at least the ones that we have—we see some great opportunities, and the prices that acquisition opportunities are coming at us are very interesting. We like our diversified portfolio, so we are not going to be concentrated solely on Harley-Davidson, but this recent acquisition was really outstanding, and they are fantastic locations where, as I mentioned, you have a lot of sunny days in those markets to offset some of the snowy weather in our big South Dakota Sturgis stores. We do see opportunities. You look at the gross that is generated in motorcycle sales, new and used—it is really crazy. We are making the same amount of profit on selling an item maybe a third of the price of a vehicle. So there are some great opportunities there. Jeff? Jeff Dyke: Yes. To give you a little more detail on what David was talking about: our new GPU for the first quarter franchise was $3,144, and our GPU for powersports was $2,891—damn near the same number. Our used GPU—we have really grown the heck out of our used business in powersports; that is something the industry lacks—was $1,938 a copy versus $1,539 a copy. We are making more gross selling used in powersports than we are selling used on the franchise side. So it is a very exciting opportunity for us to grow that part of the business. We are opportunistically buying, just being very careful and cautious, as we told you from day one—growing the business and putting in our playbooks, our technology, taking care of our guests, taking care of our teammates—and we just get better and stronger. All-time record quarter; we see that backing up to the next all-time record quarter and the next one. It is a fun business with great margin percentage. Our team loves going in and buying them, and those we are acquiring love it. We are having a great time, and as David said, we have a fantastic leadership team running that business totally separate from EchoPark and our franchise business. We will see what happens in the coming quarters. There is a lot of opportunity in this segment. Alex Perry: That is really helpful. Could I ask one follow-up on that? The used grosses and the differential versus vehicle side is pretty interesting. Why do you think the grosses are so high in the powersports side on a relatively lower ASP? Is it just the fractionation of the market? David Smith: It is. That is part of it. But think about it: customers do not know what to do with that product. When they buy a new power sport—buy something Polaris or whatever—they have always taken their old one and put a sign on it in the front yard and said “for sale.” They do not know that we want to buy that from them. And they are expensive. You buy a brand new Ford—Polaris now—$55,000. We can trade for them and sell them for in the upper teens or lower $20,000s, make great margin like you see, and provide the consumer with something they have never gotten in this industry. Jeff Dyke: So there is a huge opportunity. The industry just did not sell pre-owned. We are growing pre-owned at 40%–50% clips a quarter, and that is going to continue into the future. They just did not focus on it, and that is something that is core to our success at Sonic Automotive, Inc., and we are bringing that to this industry. It is making a big difference. Danny Wieland: And that is one of the things that validated our entry into this. Over the last three quarters, we have grown 35%, 40%, and this quarter 56% used vehicle volume year over year, even in an off quarter like the first quarter seasonally. New volume was up 16%. Both new and used gross per unit grew 7% or 8%. So we are growing not just the base, but the efficiency of those products just as we get into prime selling season here starting in April and May. They also had very little discipline around inventory management, and as you guys know, that is something that we are known for in our day supply and how we manage inventory. We do not get surprises there. If we do, they are fixed within two weeks. There was absolutely none of that in the powersports business. We have cleaned all that up from a parts, used, and new perspective, and we are turning inventory like we should. That is going to expand margin when you do that. Alex Perry: That is incredibly helpful. It sounds like an exciting opportunity. Best of luck going forward. Jeff Dyke: Thank you very much. Operator: Thank you. There are no further questions at this time. I would like to hand the floor back over to David Smith for any closing comments. David Smith: Great. Thank you very much. Thank you, everyone. We will talk to you next quarter. Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you again for your participation.
Operator: Greetings, and welcome to Weave Communications, Inc.'s First Quarter 2026 Financial Results and Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal remarks. As a reminder, this conference is being recorded. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. I would now like to turn the conference over to your host, Moriah Shilton, Investor Relations. Thank you. You may begin. Moriah Shilton: Thank you, Kara. Good afternoon, everyone, and welcome to Weave Communications, Inc.'s First Quarter 2026 Earnings Call. With me on today's call are Brett White, CEO, and Jason Christiansen, CFO. During the course of this conference call, we will make forward-looking statements regarding the anticipated performance of our business. These forward-looking statements are based on management's current views and expectations, entail certain assumptions made as of today's date, and are subject to various risks and uncertainties described in our SEC filings. Weave Communications, Inc. disclaims any obligation to update or revise any forward-looking statement. Further, on today's call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. Unless otherwise noted, all numbers we talk about today will be on a non-GAAP basis, which excludes acquisition-related costs, costs related to certain shareholder matters, amortization of acquired intangible assets, and stock-based compensation. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our Investor Relations website and as an exhibit to the Form 8-K furnished with the SEC before this call, as well as the earnings presentation on our Investor Relations website. With that, I will now turn the call over to Brett. Brett White: Thank you, Moriah. And thank you to everyone joining us today. I am very pleased to share that we have delivered another excellent quarter marked by acceleration in revenue growth and further expansion in operating margin. Both revenue and profitability came in above the high end of our guidance. This marks our 17th consecutive quarter of meeting or exceeding the high end of our revenue guidance. Revenue growth accelerated to 17.4% year over year and operating income was $2.5 million, a significant improvement from breakeven last year. This continues our track record of strong execution, consistent growth, expanding margins, and disciplined operations. We are well positioned for long-term success with a growing customer base and an expanding market opportunity. We see a clear path to building a significantly larger business with our growing suite of solutions by expanding market share and increasing average revenue per location. We added the most locations ever in a quarter, and revenue retention improved in Q1. We saw strong performance in our upsell motion, with new products like insurance eligibility and AI receptionist. Additionally, payments revenue growth accelerated in Q1 as our customers increasingly used Weave Communications, Inc. for their payment processing. Weave Communications, Inc. is purpose-built for health care. We serve over 40 thousand customer locations and billions of patient interactions flow through our platform. That data, combined with nearly two decades of experience, underpins a platform that supports growth and executes that work end to end. Weave Communications, Inc.'s workflows begin with precare operations focused on acquiring new patients, reengaging existing patients for follow-up care, and keeping schedules full. Once a visit is scheduled, we automate administrative tasks like confirming appointments, collecting patient information through digital forms, and verifying insurance eligibility to ensure appointments are kept and to streamline patient intake. During the clinical visit, we handle payment processing and help staff address patient financing needs that improve treatment plan acceptance. Following treatment, our platform helps manage the practice's online reputation through reviews, and manages accounts receivable by following up on unpaid bills and enabling patients to make payments from their mobile device. Throughout the patient journey, Weave Communications, Inc. manages communication and engagement behind the scenes, reducing time spent on repetitive tasks and empowering staff to focus on the personal side of patient care. Health care practices are resilient businesses, but they face significant operational pressures: higher costs of goods, rising labor expense alongside talent shortages, and elevated patient expectations. The day-to-day demands of running a practice often pull skilled staff away from face-to-face patient care. Weave Communications, Inc. harnesses the power of AI to automate repetitive tasks. Rather than managing paperwork, practice teams focus on people work. Our deep understanding of health care workflows guides how we deliver and use AI through our platform. Our customers start with a Weave Communications, Inc. core solution that typically includes communications, reviews, appointment reminders, and patient recall to fill schedule openings and ensure schedules stay full. Customers pay for these solutions through standard bundles, and we have released several AI-powered enhancements that streamline practice operations and make these bundles more valuable. More than 50% of our customer locations use at least one of these embedded AI solutions such as intelligent reviews response and always-on messaging assistant. Additionally, we have developed AI-powered products that we sell as add-ons to their chosen bundles. These products include Call Intelligence, insurance eligibility, and our AI receptionist. Weave Communications, Inc. Call Intelligence is an AI analytics product that transcribes every call and creates a task list for office staff to follow up on. It highlights missed revenue opportunities and unhappy patients. A physician owner of a primary care practice in New Jersey implemented Call Intelligence as a coaching tool for his front desk team. Rather than operating without clear visibility, or manually reviewing every call, they use AI-generated summaries and transcripts to pinpoint the exact moment patient sentiment shifts, dramatically reducing the time required to identify training gaps and freeing them up to provide more one-on-one coaching. After implementing Weave Communications, Inc. Call Intelligence and updating training, their unhappy call rate dropped by over 40% in just two months. A multi-location med spa in Philadelphia describes a similar transformation. Every Wednesday, using Call Intelligence, they review the flagged unhappy calls and follow up with a personal note. They report a 100% client retention rate among those follow-ups. They shared that they would not have known who needed outreach without it. Our solutions provide these practices with protection from otherwise invisible and preventable revenue leakage. Our customers are increasingly reliant on our AI functionality. In Q1, our platform handled over 300% more AI interactions than in Q1 last year. The growth is being driven by both expanded AI features and products and increased customer adoption. Today, our text-based AI handles appointment scheduling and answers common questions such as office hours and accepted insurance providers. Our customers have highlighted a number of ways the AI receptionist has increased the production of their dental practice. One is by reducing no-shows and appointment cancellations. Another is effectively converting leads to new patients. A dental practice recently reported that using our AI receptionist, they saw new patient volume grow 37%. This had a meaningful impact on the business's financial profile as their new patients spend three times as much per visit as existing patients. Next week, we will release our omnichannel AI receptionist to customers on select integrations, which will significantly increase these capabilities by supporting both voice and text modalities. We anticipate that the agent will be more broadly available late this quarter. Weave Communications, Inc. delivers seamless task execution, transcription, and summarization, and preserves context through a single unified view of conversations and analytics across every bot-to-human handoff. We are uniquely positioned to deliver this capability. Because we own the full stack, we make the entire experience connected, visible, and actionable. Initially, the agent will be able to effectively manage dozens of workflows, including scheduling, answering common questions, and completing handoffs between AI and humans. We have mapped out hundreds of additional workflows which will steadily be added to the agent skill set. It will become a more effective and skilled teammate every week. Customers who are using this latest solution are getting significant value from it, and it is changing the way they operate. One dental office signed on to the pilot because the staff was completely overwhelmed by voicemail and increased call volumes on Mondays. By implementing our AI receptionist, patients got their questions answered more quickly, and more appointments were kept. The doctor highlighted, quote, we only get paid when patients come in, so protecting the schedule matters. We have had several instances where patients started to cancel at the last minute, saw the cancellation fee warning from the AI agent, and decided to keep the appointment. End quote. A dental practice in Florida joined the pilot to address missed calls outside of business hours and an overwhelmed front office team during the day. The result is that missed calls have dropped by roughly 80% with a similar decrease in weekend voicemails. An additional benefit is the improvement in care continuity. Patients dealing with emergencies or last-minute scheduling conflicts can now get help when they need it most. For the front office team, the day simply runs smoother with fewer interruptions, less time managing calls on hold, and a lighter start to the week. These are just two examples, but the early results confirm that providing our customers with an always-on teammate to autonomously fulfill daily tasks will change the way these practices do business. This makes Weave Communications, Inc. more mission critical than ever by increasing the production and revenue capture of the practice, which provides an additional way to grow our revenue per location by competing for a portion of the labor budget. We plan to monetize the omnichannel AI receptionist through a hybrid subscription model, largely aligned to consumption. Our ability to monetize will grow as practices expand their utilization of this always-on teammate that manages the complete patient life cycle. In the future, we expect to capture even greater payment processing volumes as we process copays by intelligently managing the intake process and collecting outstanding balances. The future of Weave Communications, Inc. is agentic and proactive: converting leads to booked appointments, filling holes in the schedule with patients on the verge of slipping through the cracks, collecting critical patient data in advance of appointments, recommending financing options to drive higher treatment plan acceptance, garnering online reviews, and collecting on outstanding patient balances. Our current and future success with AI is a result of nearly 20 years of data and deep domain expertise that informs the development of health care–specific workflows. Most patient-facing workflows for a practice originate from or terminate through a phone call or a message. Our communication platform gives us a significant advantage as Weave Communications, Inc. owns and manages this control point and natively executes these workflows through the trusted primary business phone number, which leads to higher patient engagement. These interactions often require data transfers with practice management systems, and we have the largest library of authorized practice management systems integrations available. Weave Communications, Inc. is the all-in-one partner that practices can use to standardize work and efficiently grow their business. Practices that use Weave Communications, Inc. are smarter, built to scale, and feel more human. We focus on the day-to-day operations so the rest of the practice team can focus on the people they care for. To close, I want to thank the Weave Communications, Inc. team for their continued focused execution. Q1 was a great quarter, and our future is bright. I am very excited about the recent product launches and what we have on the horizon. Our financial results improved while delivering increasing value for our customers. We are well positioned for success in the new AI frontier. We will continue to lean into our strengths and our scale to deliver innovative solutions that help our customers improve their business outcomes. I also want to thank our customers, partners, and shareholders for your continued trust. With that, I will turn the call over to Jason to walk through the financials in more detail. Jason Christiansen: Thanks, Brett, and good afternoon, everyone. The first quarter was a great start to 2026 for Weave Communications, Inc., with improved revenue growth, strong gross margins, and much improved operating income as we continue to execute across the business. In the first quarter, we produced $65.5 million in total revenue, which represents an acceleration to 17.4% year-over-year growth, driven by payments, which again grew more than twice the rate of total revenue, and the addition of new locations. We added more gross and net locations in Q1 than in any previous quarter, and the specialty medical vertical continued to be the largest contributor. Gross profit grew over 19% year over year to $47.9 million. Gross margin for the quarter was 73.2%, representing a year-over-year improvement of 110 basis points. This margin improvement in Q1 was primarily driven by improvements in our customer support model, ongoing efficiencies in our cloud infrastructure and hardware device costs, and the growing contribution of higher-margin payments revenue. Customer support has been able to scale partly due to the benefits of using AI to deflect calls and effectively manage the caseload tied to a growing customer base. We also saw strong growth in the number of locations using our payment processing solutions, increased processing volume per location, and a higher net take on payment transactions. These factors contribute to an expanding subscription and payment processing gross margin of 78.4%. In aggregate, the underlying progress and growing mix of high-margin payments revenue clearly highlights a path to achieving our target long-term gross margin profile of 75% to 80%. Turning to our dollar-based revenue retention metrics, we believe our reported metrics found the floor in Q1 as monthly retention rates positively inflected in the quarter and were higher than in 2025. Our dollar-based net revenue retention rate in Q1 was 92%. Our dollar-based gross revenue retention rate was 89% and remains very strong for companies serving SMB customers. As a reminder, our reported dollar-based revenue retention rates are a weighted average of the previous 12 months’ monthly retention rates. As such, it can take multiple quarters for improvements to show through in reported metrics. Total operating expenses for Q1 were 69% of revenue. As mentioned in our previous conference call, Q1 expenses are seasonally higher due to the reset of payroll tax limits and benefit renewals taking effect. General and administrative expenses were $10.2 million, and decreased over 180 basis points year over year to 15.6% of revenue from 17.4% of revenue in the prior year. Research and development expenses were $8.6 million, or 13.1% of revenue. Research and development expenses decreased slightly year over year due to the increased capitalization of software development costs in Q1 2026, as development efforts tied to new products have increased. Our omnichannel AI receptionist development has been a key contributor. Sales and marketing expenses totaled $26.6 million, or 40.6% of revenue. Sales and marketing expenses increased year over year largely due to increased advertising expenses and sales costs. Q1 is seasonally higher in advertising expenses due to increased events and prospect reengagement after the holidays. We added a payments sales team and channel sales team in 2025, expanded our inbound, upsell, and mid-market sales teams, and most recently reintroduced a sales development team. We continue to optimize our sales and marketing activities to deliver more profitable growth, and we anticipate some improvements in sales and marketing efficiency as a percentage of revenue starting in 2026. Operating income for the quarter was $2.5 million compared to breakeven in Q1 2025. Operating margin was 3.9%, a 380 basis point improvement over the prior year and more than a 20 basis point improvement sequentially. We are really pleased with how the quarter developed, as we converted 26% of the revenue growth year over year into incremental operating income. The 26% incremental margin is a significant improvement over the 6% incremental margin produced in Q1 2025. Turning to the balance sheet and cash flow, we ended the quarter with $72.7 million in cash and short-term investments, a decrease of $9 million sequentially. Cash used by operating activities in Q1 was $5.7 million and free cash flow was negative $7.1 million. Q1 cash flows and March 31 balances on the balance sheet are impacted by large seasonal disbursements, including the payout of our annual bonuses and significant prepaid software renewals, which will not recur until Q1 of next year. Additionally, we used $1.6 million in cash on the net settlement of vesting equity awards, which reduces dilution from RSU vests. We expect free cash flow to be positive for February 2026. Looking ahead, we look to build on our strong Q1 and are encouraged by the opportunities in front of us. We remain committed to delivering improving margins while maintaining our bias toward growth. We continue to make targeted investments in growth initiatives, which reflects our ability to balance growth while making investments into our business. For Q2 2026, we expect total revenue to be in the range of $67.2 million to $68.2 million. We expect second quarter operating income to increase from Q2 last year to be in the range of $2.1 million to $3.1 million. As a reminder, Q2 operating expenses will increase sequentially as annual merit increases take effect in early Q2. For the full year 2026, we are raising our outlook and expect total revenue to be in the range of $275 million to $278 million. We are also raising our outlook for non-GAAP operating income and expect it to be in the range of $10.5 million to $13.5 million. We expect our weighted average share count for Q2 to be approximately 79.6 million shares and approximately 79.8 million shares for the full year. With that, I will turn the call over to the operator for Q&A. We will now open the call for questions. Operator: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Alex Sklar with Raymond James. Alex Sklar: Great. Thank you. Brett, first one for you. Just in terms of the record locations added, where do you see that incremental pickup versus some of the prior quarters? And what are you seeing in terms of the land sizes relative to a year ago across all your different bundles? Thanks. Brett White: Sure. So we had really strong performance across all of our verticals and all of our motions. So, I think, as Jason mentioned, medical was strong, but dental was actually quite strong as well, which was terrific to see because that is the largest part of our business. So I think broad performance across all verticals for new locations added. And then also all of our motions, we had a strong bookings quarter in mid-market, added some good logos there. Both inbound and outbound performed well adding locations, and then on just adding the MRR, not location-based, our upsell team had a terrific quarter. All the new products that we have released over the last 12 months are really getting traction now, which is terrific to see. And then on the land side, on ASP, I think it is pretty consistent with what we have seen over the last several quarters. Obviously, the upsell motion adds to the average revenue per location for the businesses that are adopting those products. Alex Sklar: Great color there. And then a follow-up on payments. I do not know if you want to take this or Jason. You talked about higher usage in the quarter. Maybe just some color on what drove that? And then enhanced payment integration with some of those bigger practice management vendors—what is the potential unlock there from that announcement? Thanks. Jason Christiansen: Yeah. Hey. Thanks, Alex. Really, we saw very strong payments performance across a number of vectors. I think some of the product functionality that we talked about at the end of 2025 that we delivered, which includes bulk collection capabilities—the ability to send multiple collection requests through one motion—payment reminders that follow up on unpaid invoices, and then the surcharging capabilities. All of them contributed to the additional pickup. Surcharging was a very strong quarter for us. We saw the most increase in adoption of surcharging here in Q1 as we have seen. So really encouraging across those use cases. And then you cannot discount the impacts that adding payment integrations has on the payments business. We are still pretty early stages. We have got a handful of payment integrations done with more to come. And I think that will continue to be an unlock for us as we are able to really just streamline some of the office workflows, the pain points that staff experiences, and help these practices reduce their days’ sales outstanding and their AR balances. And so AI receptionist is going to be part of that story as we look forward, as we are able to become more proactive in collecting on those balances and also help introduce the collection on the front end as part of the intake process. Alex Sklar: Okay. Great. Thank you both for the color and nice results. Operator: Your next question comes from the line of Hannah Rudoff with Piper Sandler. Your line is open. Please go ahead. Hannah Rudoff: Hi, guys. Thanks for taking my questions. It is nice to see the growth acceleration in Q1. I just wanted to ask on AI receptionist. You talked about hybrid subscription and consumption pricing. I guess, Jason, could you just expand on what this looks like? I know you have talked about tapping into labor budget in the past, and I guess have you thought about pricing this on more of an outcome-based pricing model? Brett White: Sure. So what we mean by hybrid is, we will have a monthly fee for the product, which will come with a number of phone calls—a number of phone interactions—handled by the agent. And as your usage increases, then you can move to a higher tier, which gives you more phone calls that the agent will take. So, basically, you can scale the receptionist up and down, and the monetization is really tied to the number of calls it handles. So you could imagine a practice may want to use it just for nights and weekends, so that would probably be on the lower end of the call handling. Or they might want to use it 24/7 to actually be a fully always-on teammate, in which case the number of calls handled would go up, and then the pricing would go up as well. So right now, that is the pricing that we are launching with. And as far as outcome-based pricing, yeah, it is absolutely on our pricing team's radar. But we are going to start with this hybrid usage model and test that and see how that goes. Jason Christiansen: The one thing I would add to that is, as we think about some of the additional workflows that we deliver, there is built-in or inherent pricing on that side. When you think about payments, as we integrate payment workflows into the AI receptionist, we will also be able to collect on the outcomes of actually collecting balances on behalf of practices, but there is a lot more thought going into it that we will continue to iterate over time. And maybe one thing just to highlight on the AI receptionist that Brett alluded to, where offices will be able to scale the utilization up or down: one of the unique things about Weave Communications, Inc. and our ability to support that is because we own the full communication stack on the back end. Offices can insert the agent anywhere they want within the interaction flows. So offices will have the control to dial that up, to scale that back, hours where they want it in—like for calls coming in, where they want it in the call tree, where they do not, when they want it to escalate or hand it off to a human and when they do not. And so that is part of the adoption that Brett is talking about. As offices might start with nights and weekends and see how it starts to actually deliver meaningful bookings and see the same results that the customers we highlighted are getting, they will be able to inject it more and more directly with how their practice operates. That is unique to us because of the full stack that we own where it is all in one place. Brett White: Yeah. To expand on that a little bit, if I could, Hannah, we recently showed one of our large DSOs this functionality. Basically, you pull up a screen—it is basically a flowchart—and you grab the AI receptionist and you move it wherever you want. So you can say, I want it to pick up only at lunch. Or you can say, I want it to pick up only after the third ring. Or—I want it—so, you know, just showing the capability and the flexibility of moving the agent anywhere you want in the call tree is really, really powerful. And I am sure that practices will experiment with it and see how it works best for them. Hannah Rudoff: That makes a ton of sense, and it is nice to see that users can completely customize how they use the AI receptionist. My second question is on NRR. I know we have talked about this metric being a little complicated just with it being location-based, but I guess how should we think about, or when should we expect, AI to help drive an expansion in that NRR metric? Jason Christiansen: Yeah. I guess I will just start with highlighting what I talked about in the prepared remarks, which was where we have started to see an inflection within the monthly net retention metrics—not the weighted 12-month average, but the direct monthly—here in Q1. You know, the contribution—there is an interesting thing with our business, which is customers continue to land heavy whenever we bring new capabilities and we are able to deliver meaningful value. And so how exactly AI starts to drive the expansion of our net revenue retention is tough to predict. We have a better opportunity today with the release of these new products that we have brought to market and what is coming—more than we have had in the past. And so that is something that we are leaning into and we are optimistic about, also realizing that they may continue to land heavy as well and how that dynamic will play out. The one thing that I anticipate to continue to be true—which is regardless of what happens with net revenue retention as a metric—the average revenue per location, we anticipate that to continue to grow. Q1, we saw growth again in the revenue per location. If you look over the last two years, it has grown about 10%. At the same time, net revenue retention has decreased as a metric. And so I think we are very optimistic about what these products can do and contribute, though. Hannah Rudoff: Makes a ton of sense. Thanks, guys. Operator: Your next question comes from the line of Parker Lane with Stifel. Your line is open. Please go ahead. Parker Lane: Yeah. Hi. This is Jack on for Parker. Thanks for taking the questions today. I wanted to go back to the strong quarter of location additions, and I would be curious to hear if in any way you are seeing the AI product set and roadmap really resonating with prospective clients, and whether this potentially drove the really strong location addition quarter. Brett White: Yeah. So I will start. Because of our sales model, what is super interesting is we generally sell what we have available to deliver immediately. So the vast majority of the sales success in the quarter was on the core products that we have now—our core engagement platform—plus some of the newer products that have come out recently. We do not really sell futures just because of the SMB nature of our customers. However, what resonates very well with larger customers—DSO, multi-location—is the roadmap. So I think most of the upsell and the new additions this quarter were primarily based on our current product set—what they were going to get next week, what they are going to go live on next week—which kind of gets us even more excited about the next 12 to 24 months because then we can get these customers onboard, happy with the core platform, and then come back to them with new products, additional products, especially the AI receptionist. Parker Lane: Yeah. No. It makes sense. And then just to follow up, when you think about the ideal customer profile for the AI receptionist and what you are rolling out soon with everything around the omnichannel receptionist, is there a portion of your customer base that you think the product makes the most sense for in particular? Is it more relevant in mid-market due to their scale or SMB due to staffing constraints? Or maybe even on the vertical side there may be puts and takes between the old core TAM versus specialty medical in terms of ripeness for adoption. Brett White: Yeah. So it is a great question. And as we build our personas for our core platform and additional products, we really give a lot of thought to this. So the AI receptionist is getting really favorable reviews across the board, and there are really different use cases. If you are a small practice, you want to cover the phones at lunch or over the weekends, because all you need to book is a couple potential lost appointments, and it pays for itself. You can see some small practices say, well, I will try it because I really want to have that personal experience. But then they find out how many calls they are missing, and it is really not a personal experience. So the proposition definitely resonates on the low end. And then you think about the high end—multi-location practices—they are very, very serious business operators. They understand the economic value very clearly. And so the upsell products that we have—Call Intelligence is going really well with larger, more sophisticated practices—we expect the AI receptionist, we are piloting with them now, and it has been received very well. So when we look at the personas for the additional products, specifically AI receptionist, it really works. There is a strong use case all the way across the spectrum. Jason Christiansen: Yeah. And when you look at it by vertical, you see a similar phenomenon with just how they operate. Many dental practices might only be in the office four days a week, and so they have extended weekends where they need more coverage that this is really impactful. If you flip over and you look at a veterinary clinic, they have incredibly high call volumes that flow into their practices. And so the value proposition of a receptionist that can help them manage—especially if there are staffing shortages—the demands of pet owners to bring their sick or injured, or whatever the situation is with their loved animal, having a resource in place that can help address their needs is also very relevant. And so it is universal across the end markets that we serve and across the sizes as Brett highlighted. Parker Lane: Great. Thank you. Operator: Okay. I think that concludes the Q&A portion. So I will now turn the call back to Brett White for closing remarks. Go ahead. Brett White: Okay. Well, thank you all very much for joining the call, and thanks again to the Weave Communications, Inc. team for such a terrific quarter. I look forward to chatting again in about 90 days. Operator: And that concludes today's call. Thank you for attending. You may now disconnect.
Operator: Morning, ladies and gentlemen, and welcome to the Cousins Properties Incorporated First Quarter Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded. On Thursday, 04/30/2026. I would now like to turn the conference over to Pamela Roper, General Counsel. Please go ahead. Pamela Roper: Thank you. Good morning, and welcome to Cousins Properties Incorporated first quarter earnings conference call. With me today are Colin Connolly, our President and Chief Executive Officer; Richard G. Hickson, our Executive Vice President of Operations; Jane Kennedy Hicks, our Executive Vice President and Chief Investment; and Gregg D. Adzema, our Executive Vice President and Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-Ks. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the Quarterly Disclosures and Supplemental SEC Information link on the Investor Relations page of our website, cousins.com. Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal securities laws and actual results may differ materially from these statements due to a variety of risks, uncertainties, and other factors, including the risk factors set forth in our Annual Report on Form 10-Ks and our other SEC filings. The company does not undertake any duty to update any forward-looking statements whether as a result of new information, future events, or otherwise. The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday and a detailed discussion of the potential risks is contained in our filings with the SEC. We will now turn the call over to Colin Connolly. Colin Connolly: Thank you, Pam, and good morning, everyone. We had an excellent start to 2026 at Cousins Properties Incorporated. On the earnings front, the team delivered $0.73 per share in FFO during the quarter, which was $0.02 per share above consensus. In addition, we increased the midpoint of our FFO guidance by $0.02 per share to $2.94 per share for the full year 2026, which represents 3.5% growth over 2025. This would be our third consecutive year of FFO growth and represents a 3.9% compounded annual growth rate since 2023. Cousins Properties Incorporated earnings growth during this three-year time frame is unmatched among traditional office REITs. Leasing remained robust. We completed 932,000 square feet of leases during the quarter, which is one of the highest quarterly volumes in the history of the company. Our cash rent roll-up on second generation leasing was 15.2%, which marks 48 consecutive quarters of positive rent roll-ups. Significant leasing wins included our large renewal with our largest customer at The Domain in Austin, and new leases with Oracle at Newhof in Nashville, and KPMG at Precinium in Midtown Atlanta. These results underscore the strength of our portfolio and depth of customer demand for high-quality lifestyle office space. I will start with a few broader observations on the trends driving the office. First, most major companies are phasing out remote work. Yesterday, Fidelity became the latest to announce a five-day-a-week office mandate. At Cousins Properties Incorporated, we call it the return to normal, and it is boosting demand across all of our markets. Second, the flight to quality is unrelenting. Customers are prioritizing high-quality, well-amenitized, and well-located buildings to promote engagement and collaboration. According to JLL, nearly all of the positive net absorption in the office sector since the onset of COVID has occurred in buildings that delivered from 2010 to present. Third, the Sunbelt migration has reaccelerated. We have seen a significant uptick in relocation activities as proposals to meaningfully increase personal and business taxes in New York, California, and Washington have advanced. Starbucks recently announced a major East Coast headquarters in Nashville. Apollo is looking for a second headquarters in Texas or Florida. Capital Group announced a major hub in Charlotte. Each of these companies specifically state access to the growing talent pools in these markets is a major reason for their decisions. These are not back-of-house or support jobs that they are creating. We believe that we are still in the early innings of this migration trend and expect these announcements to continue. Lastly, record-high office conversions combined with record-low new development starts are leading to shrinking inventory of office properties. Given the three- to four-year lead time to deliver a new project, this is unlikely to change until 2030 at the earliest. Simply stated, demand is increasing while supply is decreasing. The net result is an emerging shortage of premier lifestyle office space in the best submarkets of the Sunbelt, and one that will become increasingly acute over the next several years and favor landlords. Cousins Properties Incorporated is uniquely positioned to benefit from these trends. Before moving on, I want to briefly address a topic that has received a lot of attention recently, that is artificial intelligence. While AI is shaping how companies operate internally, we are not seeing evidence that it is reducing long-term demand for high-quality office space. In fact, many of the companies most actively deploying AI are also prioritizing collaboration, talent density, and physical presence, which aligns well with our lifestyle office portfolio in the Sunbelt. Ultimately, space decisions are still being driven by people, culture, and access to talent. In that respect, the trends we are seeing in our leasing activity remain very encouraging. Turning to our strategy, as we outlined in prior earnings calls, our focus remains unchanged. We are sharply focused on driving sustainable earnings growth while maintaining our best-in-class balance sheet and continuing to enhance the quality of our Sunbelt lifestyle office portfolio. Our team’s ability to drive both internal and external growth is key to this effort. During the quarter, we advanced that strategy. First, we increased occupancy to 88.9% across the portfolio as a result of robust leasing activity. Second, we closed on the acquisition of 300 South Tryon, a 638,000 square foot trophy office asset in Uptown Charlotte, for approximately $317.5 million. Third, we repurchased 3.9 million shares of our own stock at a weighted average price of $23.36. Lastly, we sold Harborview Plaza in Tampa for $39.5 million and entered into an agreement to sell 111 Congress in Austin. Looking ahead, the number one priority for Cousins Properties Incorporated is to continue to grow occupancy. We have modest lease expirations this year and a robust late-stage leasing pipeline that will support this effort. More broadly, we remain focused on optimizing our portfolio, maintaining flexibility, and creating optionality in our capital allocation decisions. As I mentioned earlier, everything we do is guided by a disciplined approach that prioritizes earnings accretion, balance sheet strength, and continuous improvement in our portfolio quality. We are excited about what lies ahead for Cousins Properties Incorporated. The office market is rebalancing, new construction is virtually nonexistent, and high-quality lifestyle office space is becoming increasingly scarce. Despite ongoing macro concerns and volatility in the public markets, Cousins Properties Incorporated continues to outperform, supported by a strong operating platform, a highly efficient G&A structure, and one of the strongest balance sheets in the office REIT sector. Before turning the call over to Richard, I want to thank our talented Cousins Properties Incorporated team for their commitment to excellence and to serving our customers, the foundation of all of our success. Richard? Richard G. Hickson: Thanks, Colin. Good morning, everyone. Our operations team delivered the strongest start to a calendar year since Cousins Properties Incorporated began its focus as a pure-play owner of trophy Sunbelt office. In the first quarter, our total office portfolio end-of-period leased and weighted average occupancy percentages were 91.8% and 88.9%, respectively. Both metrics increased sequentially and were driven by a combination of organic growth and our recent investment activity. Our portfolio lease percentage increased in nearly every market, with Atlanta, Charlotte, and Austin as the largest contributors in terms of organic growth, while Nashville’s lease percentage increased materially with our recently signed 116,000 square foot new lease with Oracle at Newhof. That project will not be included in our overall portfolio statistics until it is stabilized. The largest market contributors to organic growth in our weighted average occupancy were Atlanta and Austin. Our lease expirations through 2027 now total only 8.3% of contractual rent, which is 320 basis points lower than at the end of 2025. Coming off of a very strong fourth quarter, our leasing activity in the first quarter was record-setting on a number of levels. Our team completed 49 office leases totaling 932,000 square feet during the quarter, with a weighted average lease term of 6.6 years. Our square footage volume was the highest for a first quarter in well over a decade, and was also our highest quarterly level in general since the second quarter 2019. On a square footage basis, 52% of our completed leases this quarter were new and expansion leases, totaling 483,000 square feet. New and expansion leasing volume was essentially in line with our very strong fourth quarter, which we view as a great repeat performance. The team also completed 19 renewals during the first quarter, including a material renewal in Austin that took care of what was previously our largest 2027 expiration. Regarding lease economics, our average net rent this quarter came in at $44.54, approximately 18% higher than the full year 2025. This quarter’s average leasing concessions were essentially in line with the full year 2025. As a result, average net effective rent this quarter came in at a solid $32.28, second only to 2024. Finally, second generation cash rents increased yet again in the first quarter at a strong 15.2%, with cash rents rolling up in every market where we had activity. Beyond our excellent recently completed activity, our overall leasing pipeline remains very healthy, at a level comparable to this time last quarter. In our early March investor presentation, we shared that 1.2 million square feet of activity was either signed first quarter to date or in lease negotiations. Even after completing 932,000 square feet of volume in the first quarter, as of today, we have 1 million square feet of leases either signed second quarter to date or in lease negotiations. This late-stage pipeline has been growing nicely throughout the second quarter. In fact, it has grown by about 200,000 square feet just in the past two weeks and currently includes 450,000 square feet of new and expansion leases. We believe our late-stage pipeline has us very well positioned for continued strong leasing performance in the near term. Turning to our markets, in Atlanta, according to JLL, leasing activity was strong with 2.3 million square feet of leases signed in the first quarter. Sublease availability declined for the eighth consecutive quarter and is now at its lowest level since the start of 2021. Additionally, average asking rents had the largest quarterly increase in two and a half years. We continue to see solid demand in our own portfolio where we signed 192,000 square feet of leases in the first quarter. This included a 105,000 square foot new lease with KPMG at Precinium in Midtown. Subsequent to first quarter end, we also signed a new 46,000 square foot lease with CallRail at 725 Ponce in Midtown. CallRail is a homegrown Atlanta-based technology company that decided to relocate to 725 Ponce from Downtown because of the property’s location, quality, and direct access to the BeltLine. We are excited to welcome them as a customer. Our Atlanta portfolio was 89.3% leased at first quarter end. In Austin, JLL notes that tenant demand increased 30% year over year from about 3.9 million square feet of requirements in 2025 to nearly 5 million square feet today. The market continues to digest speculative development delivered since 02/2023. However, new speculative development is now at its lowest level since 2013. Across our Austin portfolio, we signed an impressive 339,000 square feet of leases in the first quarter, including a 273,000 square foot renewal of a Fortune 10 technology company at Domain 8. This sizable renewal demonstrates a strong commitment to the Austin market and to the value of high-quality office in the core of The Domain. Our Austin portfolio also increased to 95.3% leased as of first quarter end, driven primarily by encouraging new activity in the CBD. In fact, our Austin team has seen a notable increase in overall tenant demand in the CBD since the beginning of the year, and it is focused primarily on availability in the highest-quality office segment. In Charlotte, market-level leasing activity maintained strong momentum in the first quarter with a 74% increase year over year. In our portfolio, we signed 181,000 square feet of leases in the first quarter, 58% of which were new and expansion leases, and the team rolled up cash rents 26%. Activity included a 72,000 square foot new lease with Scout Motors at 550 South, and a 54,000 square foot renewal and 27,000 square foot expansion with a major law firm at our newly purchased 300 South Tryon. Touching on our redevelopments, our 550 South project is very close to completion—within weeks—and with that, we have seen a nice uptick in early-stage leasing interest. Regarding 201 North Tryon, that redevelopment project is well underway and should be substantially complete during 2027. Looking at our recently completed redevelopments—whether it be Buckhead Plaza, the Promenade buildings in Atlanta, or Tempe Gateway and Hayden Ferry in Phoenix—we generally saw a meaningful boost in demand and, importantly, in lease economics once the projects approach completion and prospects could see the finished product. Based on this experience, and also knowing the shortage of available premier space in the market is becoming more acute, we are taking an intentionally patient approach to leasing at the property. In short, we are willing to trade some number of months of timing of occupancy in return for meaningfully better net effective rents and outcomes for shareholders. In Dallas, the market recorded 3.6 million square feet of leasing activity during the first quarter, above first quarter 2025 levels. New supply also remains limited, which is helping to boost top-tier assets and drive rent growth. Flight to quality remains the dominant theme, consistent with all of our markets, with Class A space accounting for 73% of quarterly lease volume. In our 800,000 square foot portfolio, we signed 65,000 square feet of leases, rolling up cash rents over 32%. This past quarter, we also took over the management of Legacy Union One in Plano, and I am pleased to report that subsequent to first quarter end, we signed a 52,000 square foot long-term lease with U.S. Renal Care, representing our first direct lease with an existing subtenant at the property. Our Dallas portfolio was 98.1% leased at the end of the first quarter. Finally, and as I mentioned earlier, our leasing volume this quarter included a 116,000 square foot new lease with Oracle at Newhaft in Nashville. We are very encouraged by this activity, and Kennedy will share more details about Newhof in her remarks. As always, a big thank you to our entire team for the work you put in to make the start of this year an incredibly positive one. We appreciate everything you do. I will now turn the call over to Kennedy. Jane Kennedy Hicks: Thanks, Richard. I will start with updates from our recently completed Newhof project in Nashville. As you may have noticed, we moved this mixed-use project off of our development schedule in our supplement this quarter, given its near-stabilized status. The approximately 400,000 square foot office component is now 84.3% leased, up from 55.3% last quarter, largely driven by the 116,000 square foot new lease with Oracle. The company leased five floors on a long-term basis to accommodate its ongoing rapid growth in Nashville, citing it as the center of Oracle’s cloud and AI growth. We are excited for the company’s employees to take occupancy later this year and add to the vibrancy of this unique project. I am also pleased to share that we are now in lease negotiations for the remaining two full floors of the project, which, if executed, will bring the office component to almost 96% leased. The accelerated interest in Newhof is indicative of the demand we continue to see across our portfolio for best-in-class, differentiated assets. The 542-unit apartment component at Newhawk stabilized this quarter at 92.6% leased. I want to point out that we added Nuhawk Phase Two to the land inventory on page 27 of the supplement. As part of the Phase One development, we completed significant infrastructure including all of the parking for a future office building that is planned to be approximately 300,000 square feet. The costs for this work, including the allocated land value, are now reflected in our total land inventory number, whereas they were previously part of the overall Nuhof project spend. Given the work and investment already completed for this next phase, we believe we will have a significant competitive advantage in terms of both speed and pricing when the time is right to move forward with the development. As a reminder, we own Newhop in a 50/50 joint venture. Turning to our investment activity, we had another busy quarter. In February, as we previously disclosed, we closed on the off-market acquisition of 300 South Tryon in Uptown Charlotte. We acquired the building for $317.5 million, or $497 per square foot, a basis that represents a significant discount to replacement cost. The 638,000 square foot, highly amenitized asset is an excellent strategic fit for our portfolio and representative of the continued advantage we have in the market as a buyer for large, tricky assets. As Richard said in his remarks, we have already executed a renewal and an expansion of a large customer there, enhancing the remaining lease term and validating the mark-to-market in rents that can be achieved at the building. Across the country, the office transactions market has opened up, with sales volumes steadily increasing. Both equity and debt sources are realizing the strengthening fundamentals and are now more constructive around opportunities. Smaller transactions are generating the most depth. Accordingly, we continue to pursue select dispositions within our portfolio that we think line up well with market demand. I will add that we are in the fortunate position that we do not need to sell any of our assets, so we plan to remain disciplined in our approach. In late February, we closed on the previously discussed sale of Harborview Plaza in Westshore, Tampa. The building sold for $39.5 million, or $191 per square foot. The pricing equates to a low 9% cap rate. As I mentioned last quarter, this standalone asset needed capital upgrades and we believed our capital was best focused elsewhere. We remain under contract with a residential developer to sell our 303 Tremont land parcel in South Bend, Charlotte. The contract price for the 2.4 acres is $23.7 million and we expect it to close before the end of the year. We are always evaluating the highest and best use of our land bank and resources and determined that this site is now better suited for residential development as opposed to the office towers that we originally contemplated. We are also now under contract to sell 111 Congress in Austin. This 519,000 square foot asset was built in the late 1980s and is prominently located in Austin’s CBD. Our ownership of this asset dates back to the Parkway transaction in ’20, and similar to Harborview, our view is that this asset is better off in the hands of private capital going forward and we intend to redeploy the proceeds as part of the funding of 300 South Tryon. We were pleased with the process and the positive sentiment towards the asset and the Austin market. We will disclose more details around pricing after closing, which is anticipated to be early in the third quarter. These dispositions are representative of our strategy to continuously monitor our portfolio and identify opportunities to recycle out of non-core assets to fund acquisitions—acquisitions of either assets or our own stock, if that is a better use of proceeds at the time. We only intend to do so in a manner that is neutral or accretive to earnings. We believe that this ongoing portfolio optimization will only enhance the resiliency of our assets and future cash flows. Going forward, we plan to be opportunistic when it comes to both acquisitions and dispositions, as well as other investment opportunities such as development. We have the flexibility to invest in a variety of ways throughout a capital stack, including preferred equity and mezzanine positions, as we have demonstrated in the past. Given the emerging scarcity of available lifestyle office space, we believe that there will be select instances where development is compelling and offers an appropriate return premium to trophy acquisitions. We are currently evaluating opportunities with the goal of breaking ground within the next year. We will provide more insights if and as those transactions materialize. With that, I will turn the call over to Greg. Gregg D. Adzema: Thanks, Kennedy. I will begin my remarks by providing a brief overview of our results, spending a moment on our same property performance, then moving on to our property transactions and capital markets activity, before closing my remarks by updating our 2026 earnings guidance. Overall, as Colin stated upfront, our first quarter results were outstanding. Second generation cash leasing spreads were positive, same property year-over-year cash NOI increased, and leasing velocity was exceptionally strong. Focusing on same property performance for a moment, cash NOI grew 5.5% during the first quarter compared to last year. This was comprised of a 4.5% increase in revenues and a 2.7% increase in expenses. These numbers were positively impacted by a combination of increased occupancy and the expiration of rent abatements, primarily at Promenade Tower, Tempe Gateway, 300 Colorado, and Hayden Ferry. Before moving on, I wanted to take a moment to highlight our recent same property expense performance. Despite lots of talk around accelerating property-level inflation—including taxes, utilities, payroll—we have held same property expenses to an average annual increase of just 1.95% over the past four years. I suspect this sub-2% number is well below most investors’ perception of office expense growth over the past few years. A new and efficient portfolio located in affordable and business-friendly markets is what has allowed us to contain expenses. As Kennedy discussed earlier, we acquired a property in Charlotte during the first quarter. We will fund this acquisition with the sale of three non-core properties. We already sold Harborview during the first quarter, and we are under contract to sell 111 Congress during the third quarter and 303 Tremont land during the fourth quarter. We also received repayment during the first quarter of our $18.2 million mezzanine loan secured by an equity interest in the 110 East property in Charlotte. Moving on to our capital markets activity, it was very busy and very productive. We started by issuing a $500 million seven-year unsecured bond immediately after announcing fourth quarter earnings in early February. It was a great execution, generating a yield to maturity of 5%. With this issuance, we have effectively taken care of all of our 2026 refinancing needs. In total, we have issued four unsecured bonds for $1.9 billion since receiving our investment-grade credit rating in April 2024. As Colin stated upfront, we also repurchased 3.9 million shares at a weighted average price of $23.36 per share during the first quarter. Please note that subsequent to quarter end, the board authorized an increase to our recently launched share repurchase program, taking the authorization from $250 million to $500 million, of which approximately $410 million remains available. We now have both a share repurchase program as well as an ATM program available for use, and we have actively employed both over the past 12 months. In addition to shares we repurchased this past quarter, we issued 2.9 million shares on a forward basis under our ATM program during 2025 at an average price of $30.44 per share. We have not yet settled these forward shares. Finally, on April 1, we closed a new five-year $1.2 billion unsecured credit facility, increasing the prior facility that was scheduled to mature in April 2027 by $200 million. As part of this process, we also amended our existing $400 million and $100 million unsecured term loans, adding two six-month extensions to each. The borrowing spread improved by 15 basis points on both the credit facility and the larger term loan and by 30 basis points on the $100 million term loan. Before closing with guidance, I wanted to briefly provide some context on the leverage. Our goal remains, as it has since 2014, to maintain net debt to EBITDA in the low five-times range. The metric is a bit elevated this quarter at 5.66 times, but it is only a timing issue. Once we complete the asset sales to fund the Charlotte acquisition and we complete the funding of the share repurchase, leverage will return to its historic level. With that, I will close my prepared remarks by updating our 2026 guidance. We currently anticipate full year 2026 FFO between $2.90 and $2.98 per share, with a midpoint of $2.94. This is up from our prior midpoint of $2.92 and represents an increase of approximately 3.5% over the prior year. The increase in FFO guidance is primarily driven by the share repurchases I just discussed as well as better-than-forecast execution of the debt financings, partially offset by the elimination of a prior mid-year SOFR cut assumption. We now have no SOFR cut assumptions during 2026 in our guidance. Our updated guidance assumes the 3.9 million share repurchase that we executed in the first quarter is funded with proceeds from the settlements of the 2.9 million shares we previously issued on a forward basis. In reality, we may ultimately fund some or all of this share repurchase with non-core asset sales. As Kennedy stated earlier, we are constantly monitoring the sales market and exploring additional sales candidates. However, for modeling purposes, we have assumed the settlements of all outstanding forward shares during the second quarter, and this is what is in our guidance. As I mentioned earlier, our guidance also assumes the 300 South Tryon acquisition is funded with proceeds from Harborview, 111 Congress, and 303 Tremont. Finally, our guidance does not include any additional property acquisitions, dispositions, or development starts in 2026. If any of these take place, we will update our guidance accordingly. Bottom line, our first quarter results are among the best we have reported in recent memory. Important operating metrics that we track were outstanding, and we raised full-year guidance. Office fundamentals in the Sunbelt remain strong, and we continue to deploy capital into compelling and accretive opportunities. We look forward to reporting on our progress in the coming quarters. I will now turn the call back over to the operator. Operator: We will now open the call for questions. If you wish to ask a question, press 1 on your touch-tone phone. If you would like to withdraw from the queue, press 2. The first question comes from the line of Blaine Heck from Wells Fargo. Blaine Matthew Heck: Thanks. Good morning. Colin, you commented on the leasing pipeline in the earnings release and again here. Can you, and/or maybe Richard, give any more detail on the size of the pipeline today versus maybe a year or 18 months ago and versus your historical average? And maybe give a little bit more color on any trends you are seeing with respect to tenant size or industry? Are you seeing any specific segments or markets strengthening or weakening? Richard G. Hickson: Sure, Blaine. This is Richard. I will take that and then Colin can add on if he would like. For starters, you specifically asked the size of the pipeline overall today. Certainly, the late stage is what I would focus on more versus, say, a year ago, and it is about 2x the size of this time last year. That is the late-stage pipeline. It is about the same size right now as this time last quarter, but year over year it has grown significantly. Just some additional detail on the overall pipeline: I would note that the number of prospects in the pipeline overall has increased quite a bit—on the order of about 15% since last quarter—so that is encouraging to see. The net size, again, is comparable to last quarter. The mix of industries is roughly the same. I would say technology is slightly ahead of financial services at this point, but they are both neck and neck and very big drivers of our activity. Legal continues to be a significant component of our industry mix, with professional services coming in last and then a good mix beyond that. We have seen particularly strong growth— I mentioned we had about 200,000 square feet that built into the late-stage pipeline here in the last couple of weeks. It has been growing nicely throughout the quarter. We have seen the most increase in activity migrating through the pipeline in Atlanta, especially in Buckhead and in Midtown. Phoenix has had a nice bump, Nashville certainly is contributing as well—as Kennedy mentioned, we are going to leases with two more floors there—and some good activity in Austin. So it is pretty broad-based. Colin Connolly: And, Blaine, it is Colin. I would just add too, as it relates to the 900-plus thousand square feet we leased this quarter and this kind of million-plus square foot pipeline. One piece of commentary that I have seen is that the Sunbelt is largely back-office and support function, and I would characterize just about all of the leasing activity that we are doing as very much front-of-house, revenue-producing employees for very dynamic companies, whether it be in technology, financial services, investment firms—you name it—particularly also AI companies beginning to infiltrate the Sunbelt. So I can very much push back on that narrative. While there are certainly suburban properties in Atlanta with back-office employees, the same holds true with back-office employees in suburban New York. The quality of the pipeline for the portfolio that we have in our lifestyle properties is very much attracting very well-educated, knowledge, revenue-producing employees. Blaine Matthew Heck: Great. That is really helpful commentary. And you all mentioned that asking rents had grown the most this quarter in 2.5 years. I was hoping you could quantify that increase. And also, can you comment on what you think is a reasonable forecast or range for net effective rent growth in your segment—Class A, A+, or trophy—within your markets, and whether there are any standout markets on the positive end of that metric or any that could be more muted? Richard G. Hickson: Sure. This is Richard again. In terms of rent growth, we have a number of different examples we can give on really impressive rent growth across markets. In Atlanta, for instance, at Buckhead Plaza, we have been able to grow rents 20% in the last year or so. In Dallas, Uptown—it has really been breathtaking how much rents have grown, particularly in Uptown. I think the general number is about 40% in growth since 2021, and I think new product and top-of-market asking rents right now are $80 net. So extremely impressive rent growth there. If you look at Charlotte, all the new products that have leased up in the last year or so in the market as they were taking down large blocks, we pegged that rent growth during that process at roughly 10% during that time. In Phoenix, lastly, where we have done our redevelopment of Hayden Ferry, which is now complete, we have grown rents about 20% since 2024. So those are just some examples of some really bright spots where we have been able to push rent growth. It is really just a dynamic market where, as Colin has mentioned, supply is shut down. We are not going to see any new supply really added to virtually any of our markets that is not already leased, and demand is still allowing us to push net effective rents. In terms of how much those will grow, we certainly posted very impressive net effective rent growth this quarter, and it was broad-based. The mix of where we did our leasing this quarter was very favorable in a lot of our highest rent markets. We feel good. It is always hard to pinpoint exactly how much we are going to grow net effective rents in any given quarter versus another, but over time we are confident that we are going to continue to grow them in a manner that we have done so here in the recent past. Blaine Matthew Heck: Great. Thanks. And then just lastly, can you talk a little bit more about the optionality you have for funding the share repurchases? I believe you have issued the forward shares yet. So can you talk about the strategic and economic merits for stock issuance versus additional sales? Are there certain cap rates or other factors that would make you lean towards sales instead of the forward equity? Gregg D. Adzema: Hey, Blaine. Good morning. It is Greg. We have issued the forward shares; we just have not settled them. I just want to make sure everybody understands that. And we have the flexibility right now to settle those shares through year-end 2026, but that can be extended with the banks that helped us issue those shares. So we have ultimate flexibility there. In terms of modeling, you need your models to put in some type of assumption, and so this is the most conservative and cleanest assumption, and that is what we provided. Is that what we actually do at the end of the day? Maybe, maybe not. But as Kennedy talked about in her opening remarks, we are always in the market, exploring the market and liquidity and pricing for our non-core assets. We do not have a lot of non-core assets left, but we do have a handful, and so we are out there exploring. I think how we ultimately pay for the $90 million share repurchase that we executed in the first quarter will depend upon the clarity that we get over the next month or two or three on some of these efforts that Kennedy is out there doing with the non-core assets. We are in a sources and uses business, and ultimately, at the end of the day, we are trying to drive accretion on a leverage-neutral basis. I think one of our secret sauces here at Cousins Properties Incorporated is that we have been very nimble and in a position to be nimble with this balance sheet that we have—to figure out a way to maximize shareholder value but maintain the balance sheet. I think we have done a good job of that in the last few years, and I think we will continue to do so. This transaction—the share repurchase and the funding of it—will just be one more example as we process that strategy. Blaine Matthew Heck: Great. Thank you all, and congrats on a great quarter. Colin Connolly: Thanks, Blaine. Operator: Your next question comes from the line of Analyst from Evercore. Please go ahead. Analyst: Perfect. Thanks for taking the question. In light of the really good leasing volumes, I just wanted to ask about your expectations for second generation CapEx spending going forward. I know you do not necessarily guide to FAD, but I am just trying to understand and square FFO versus FAD growth in the near-term future. Gregg D. Adzema: It is Greg again. Second gen CapEx, as you know if you have looked at our earnings supplement over the last few years, can be super lumpy. It just depends upon the leasing that we do and then, honestly, when the tenants that we lease to come to us and want their TI dollars back. FAD is a cash-basis metric, and so we base it upon when the actual cash goes out the door. Some tenants can ask for it very quickly; some tenants can wait a while before they ask for the money. So it is really hard for us to predict, but it is loosely tied to leasing at the end of the day. You have seen it elevated a little bit over the last few quarters because we have been leasing so much space, and so you could see it for calendar year 2026. Again, I do not want to comment on quarterly numbers because they are very difficult to predict with any accuracy. But for the full year, I think you could see second gen CapEx be a little higher this year than it was the last couple of years, just because we are leasing so much space. But once we stabilize the portfolio in the midterm, as Colin has talked about, you will see second gen CapEx decline to its more historic levels. Analyst: Got it. That is appreciated. I know that you previously talked about your year-end occupancy target for 2026. Now being a quarter in and obviously with leasing being very strong and the pipeline being very large, how do you feel about the occupancy trends by year-end 2026 and how bullish it makes you going forward into 2027? Richard G. Hickson: Sure. This is Richard. When you step back and look at all the building blocks—which we typically do not give at that level of granularity for occupancy guidance—but when we look at all of the building blocks, we are seeing a relatively modest amount of new leasing that we need to do incrementally to what we already have in the pipeline or have already completed to get to a year-end 90% number, which is our goal. We are confident that that modest amount is achievable and still feel good about our expectations for getting to 90%. Analyst: Okay. Thank you so much. I appreciate it. Operator: Your next question comes from the line of John Kim from BMO Capital Markets. Please go ahead. John P. Kim: Thank you. So you have a million square foot pipeline already signed in the second quarter, and that is versus roughly 800,000 square feet expiring this year. You are also selling 111 Congress, which is a little bit under-leased versus your portfolio. So I am just wondering, where do you think occupancy or lease rate could go to either by year-end or maybe over the next 12 months? Colin Connolly: Hey, John. It is Colin. As Richard just outlined, the goal for the end of the year—which we think is achievable—is 90%. And I think over the medium term, our intention is to drive this portfolio back to historical stabilized levels, which is absolutely in the low to mid-90%. That will take a little bit longer to get to. Just keep in mind while we are leasing a lot of space— we leased a lot of space in the first quarter, and we think we are going to lease a lot of space in the second quarter—there is typically a lead time, in many cases of a year plus, from signing of a lease to actual occupancy. So our ability to incrementally keep driving occupancy up will be dependent upon the timing of the need of our customers. But the underlying demand is there, and it is robust, and it is being driven by, certainly, the return to office, which might be more temporary, but more longer term, this flight to quality is insatiable, and the migration to the Sunbelt is only accelerating. John P. Kim: And the large renewal you had in Austin—it sounds like that was with Amazon just based on your commentary—but I am wondering if you could share any insights that you have on your largest tenant, given they talked about reducing a lot of desks, almost 14 million square feet of office space globally. Is there anything we should read in the renewal term? It was a little bit lower at 4.7 years versus the new leases signed this quarter. Colin Connolly: Hey, John. It is Colin. I cannot be overly specific due to certain confidentiality provisions, but you can go look at our supplement, and it seems like you are on a pretty good track there. A couple of thoughts. I shared this last quarter—some commentary specifically around Amazon, which has gotten a lot of publicity for announcing some small reduction in their workforce of, I think, 40,000 employees—but you have to put that in perspective that they grew their headcount over the past five years [inaudible].
Operator: Greetings, and welcome to the UDR, Inc. First Quarter 2026 Earnings Call. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you. Mr. Trujillo, you may begin. Trent Trujillo: Thank you, and welcome to UDR, Inc.'s quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our refreshed website at ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call, which are not historical, may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. Discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. When we get to the question and answer portion, to be respectful of everyone's time and in an attempt to complete our call within one hour, we will limit questions to one per analyst. We kindly ask that you rejoin the queue if you have a follow-up question or additional items to discuss. Management will be available after the call to address any questions that did not get answered during the Q&A session today. I will now turn the call over to UDR, Inc.'s Chairman, President and CEO, Tom Toomey. Tom Toomey: Thank you, Trent, and welcome to UDR, Inc.'s first quarter 2026 conference call. Presenting on the call with me today are Chief Operating Officer, Mike Lacey; Chief Financial Officer, Dave Bragg; and Senior Officer, Christopher Van ens will also be available during the Q&A portion of the call. To begin, 2026 is off to a solid start. Our first quarter results were in line with the expectations we provided at the beginning of the year, made possible by strong execution across operations and capital allocation. As it relates to operations, our revenue drivers all played out as anticipated and resident retention stands at an all-time high. Mike will elaborate on the strategies and tactics employed to generate these results. As it relates to capital allocation, we remain focused on taking advantage of the rare and likely fleeting opportunity to arbitrage a sizable gap in public and private market valuations. A data driven and collaborative process led us to the decision to sell four assets. Proceeds were utilized to repurchase our shares and acquire an asset we gained access to through our debt and preferred equity program. Dave will further discuss our capital allocation activities in his remarks. Staying on the topic, we continually evaluate opportunities to diversify our sources of capital. Our thoughtful and thorough research focused on investors of the future pointed to an opportunity to expand our reach to grow a segment of capital, namely high net worth investors, family office, and institutional products who collectively value frequent cash distributions. As a result, yesterday, we announced the transition to a monthly dividend. UDR, Inc. is the first residential REIT to do so. The stability and growth of the apartment industry coupled with UDR, Inc.'s operating and capital allocation acumen has led to 53 straight years of dividends totaling nearly $9 billion. We expect the relatability and transparency of the apartment industry and our robust track record to appeal to these investors who value frequent cash distributions. Stepping back, we feel good about 2026 thus far, but we have only completed the first four months of the year. Accordingly, we are maintaining our full year 2026 same store and earnings guidance, which we will reassess next quarter. From a big picture perspective, I remain optimistic about the long-term growth prospects of UDR, Inc. The fundamental outlook for the apartment industry is encouraging, with resilient demand, a shrinking future multifamily supply pipeline, and attractive relative affordability of apartments versus other forms of housing. Our culture, strategy, and proven team position UDR, Inc. well to take advantage of these fundamental strengths. Finally, I would like to take a moment to recognize Katie Katna and Diane Warfield who have decided not to seek reelection to our board. Katie and Diane have been respected voices in our boardroom and we are thankful for their stewardship and contribution to UDR, Inc. With that, I will turn the call over to Mike. Mike Lacey: Thanks, Tom. Today, I will cover our first quarter same store results and recent operating trends as well as strategic positioning. 2026 is unfolding as we anticipated and first quarter results were in line with our expectations. We leveraged real-time data to focus on total revenue and cash flow growth. In particular, we strategically started the year in a position of operating strength with occupancy of 97%, which enabled us to tactically adjust our revenue drivers to deliver year-over-year same store revenue growth of positive 90 basis points. Specific to the quarter, blended lease rate growth of 1.6%, occupancy in the mid-96% range, and mid-single-digit innovation income growth all came in as expected. Results were bolstered by resident retention that was 300 basis points higher than the prior year. This enabled us to achieve renewal rate growth of 5.2%, which was 70 basis points higher than a year ago and nearly twice as high as 2025. This strength is representative of our focus on attracting high quality residents who value the UDR, Inc. living experience. Rent-to-income levels of our new residents are stronger than the long-term average, which suggests an encouraging outlook for renewal growth going forward. Shifting to expenses, same store expense growth of 4.4% was elevated due to the impact of winter storms across our portfolio. If normalizing for the approximately $1.4 million of incremental expenses from items such as snow removal and higher utility costs, our same store expense growth would have been approximately 100 basis points better or just below the midpoint of our full year expense guidance range. As we start the second quarter, our revenue drivers are trending as anticipated. We continue to expect blended lease rate growth for the second quarter will be between 1.5%–2% with occupancy in the mid-96% range. Our regional leaders in the first quarter continue to perform well thus far in the second quarter. On the West Coast, San Francisco is a standout market with the strongest revenue growth across our portfolio, driven by blended lease rate growth of approximately 10% and occupancy in the high 97% range. The East Coast market of New York is also delivering strong revenue growth, with blended lease rate growth of approximately 7% and occupancy above 98%. Dallas continues to show the best momentum among our Sunbelt markets. Occupancy is approaching 97% and blended lease rate growth is now positive after improving by 570 basis points since the fourth quarter. In all cases, we have enhanced revenue growth due to our innovation income which includes services and amenities desired by our residents such as community-wide Wi-Fi and package lockers. A glimpse at our dashboards’ forward indicators reveal continued strength in San Francisco and New York as well as positive momentum in Philadelphia and Southern California, particularly Orange County. Our overweight exposure to these markets uniquely positions us to capture upside should these trends continue. The operations team continues to impress me with a data driven approach to set strategies while remaining agile to adjust as market conditions warrant. Two current examples are top of mind. First, having managed our lease cadence to place a higher percentage of expirations in 2026, we are well positioned for the spring and summer. Second, our customer experience project continues to result in sector-high resident retention, which is tracking ahead of plan thus far in 2026. This allows for operating expense savings due to lower turnover and higher revenue growth thanks to a blended lease rate growth more heavily weighted towards renewals, which combined results in better cash flow. We will continue to leverage real-time data as we focus on total revenue and cash flow growth. As a reminder, our full year 2026 guidance assumes first half blended lease rate growth will be the same as the second half at 1.5% to 2%. Said differently, we do not need blended lease rate growth to accelerate throughout the year in order to achieve our revenue growth guidance. To conclude, we delivered first quarter results that were largely in line with expectations and the second quarter is progressing according to plan. We continue to innovate, improve resident satisfaction, and therefore retention, which collectively improves our operating margin. I thank our teams across the country for your hard work, acting with purpose, and creating a highly valuable UDR, Inc. living experience for our residents. I will now turn over the call to Dave. Dave Bragg: Thank you, Mike. The topics I will cover today include our first quarter results and second quarter guidance, recent transactions and capital markets activity, and the balance sheet and liquidity update. To begin, first quarter FFO as adjusted per share of $0.62 achieved the midpoint of our guidance range. The $0.02 sequential FFOA per share decline versus 2025 was driven by the following items: a 3 p decrease in NOI, primarily due to higher sequential expenses attributable to both normal seasonal trends as well as the impact of unusual weather that Mike discussed. This was partially offset by a 1 p benefit from lower corporate expenses and G&A. And due to timing, capital markets and transaction activity was neutral to earnings in the quarter as the benefit from share repurchases was offset by a lower debt and preferred equity investment balance. Looking ahead, our second quarter FFOA per share guidance range is $0.62 to $0.64. The $0.63 midpoint represents an approximately 2% sequential increase that is driven by higher sequential NOI and accretion from share repurchases funded by dispositions. Next on transactions. Our capital allocation heat map continues to guide our strategy. We then apply a data driven and collaborative process to drive our execution. The key theme lately is the public versus private market, presented by an unusually wide disconnect in apartment asset pricing. This allows us to sell lower growth assets for 100¢ on the dollar on Main Street and buy back our shares which represent a superior growth portfolio for 75¢ to 80¢ on the dollar on Wall Street. Thus far in 2026, we have executed the following transactional and capital markets activity. First, we completed the sales of four apartment communities located in Baltimore, Denver, Seattle, and Tampa for gross proceeds of $362 million. Our approach to selecting assets for disposition is not centered around trimming exposure to specific markets or urban and suburban locales. Rather, we study asset level characteristics such as the outlook for rent growth per our proprietary analytical tools, CapEx requirements, and potential operational upside. This group of disposition assets screens inferior on these metrics relative to our retained portfolio. Therefore, utilizing proceeds from these asset sales is accretive on day one, but increasingly so in the future due to the expected differential in forward cash flow growth between the sold properties and our in-place portfolio. Second, we received proceeds of approximately $139 million from the successful and full repayment of two debt and preferred equity investments. Third, we repurchased $150 million of shares bringing total repurchase activity since September to $268 million. Fourth, our debt and preferred equity program allowed us to gain access to two communities in Portland, Oregon through the same partner. The first is a 232 apartment home community acquired in April. The second acquisition will follow in the coming months. The assessment of these opportunities is similar to the disposition process described earlier. Our proprietary analytics tool suggests outsized rent growth for the market and these assets in the coming years. Their CapEx needs are low, and the operating upside potential on the UDR, Inc. platform is high. Another benefit is that our exposure to the Portland market is scaled to a more efficient level. We anticipate a high-5% stabilized yield on these communities. Consistent with the expectations that we laid out on our last earnings call, the size of our debt and preferred equity portfolio has declined due to successful repayments, the opportunity to gain control of the Portland assets, and our view that share repurchases offer superior risk-adjusted returns versus new debt and preferred equity deployment. As a final note on investment activity, thanks to the excellent work of our development team, I am pleased to share that our ground-up development community in Riverside, California known as 3099 Iowa is progressing ahead of schedule. We now expect initial occupancy to occur in 2026 which is earlier than our initial expectation of 2027. The project is also coming in under original budget. Overall, our updated full year 2026 capital sources and uses guidance reflects the activity we have completed year to date. We have additional disposition assets in the market and we remain disciplined sellers. We will update you on incremental dispositions and uses of that capital as the year progresses. Finally, our investment grade balance sheet remains highly liquid and fully capable of funding our capital needs. We have more than $1 billion of liquidity. In all, it has been a highly productive start to 2026. We continue to execute on our strategic priorities with an emphasis on data driven decisions that drive long-term cash flow per share accretion. We will now open the call for questions. Operator: We will now be conducting a question and answer session. We ask that you please limit yourself to one question. If you would like to ask a question, please press star 1 on your telephone keypad. You may press star 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. Our first question is from Eric Wolf with Citibank. Please proceed with your question. Eric Wolf: Hey, thanks for taking my question. In terms of occupancy, I think you said that you expect mid-96% range in the second quarter. I guess, would you expect to drive that higher in the back half of the year? Or have you adjusted your full year occupancy targets a bit based on market conditions? Just curious what the strategy looks like for the next three to six months. Mike Lacey: Hey, Eric. It is Mike. Yes. The way we typically do it is we let occupancy come down in the second and third quarter when we have more demand, more traffic coming through the door. And so we get a bit more aggressive on our rents at that period of time. And typically, what you can expect from us, especially what you are seeing with the fourth quarter, is we drive it up a little bit higher. So if we are running, call it, 96.5% right now, we expect to continue to do that through about the July, August timeframe, and then we may inch it up just a little bit, maybe 10 or 20 bps. Nothing necessarily significant. Operator: Our next question is from Jamie Feldman with Wells Fargo. Please proceed with your question. Jamie Feldman: Great. Thank you for taking the question. I am sorry if I missed it. Did you talk about April trends so far? And if not, can you talk about your new, renewal, and blended rate growth and any markets that stand out in terms of acceleration, deceleration, or versus your expectations? Mike Lacey: Yes, Jamie, great question. There are a few of them there. So let me back up a little bit because I do think it is important to give kind of the whole picture here. As it relates to blended growth, what I would tell you is we are incredibly happy with the start to the year. We were able to push our blends about 370 basis points up from the fourth quarter to 1.6%. A very positive trend there and I am happy to report that it is the highest growth across the peer group on both a relative and an absolute basis. I will also point out, given our diversified portfolio, this is notable. Specific to April, I would tell you more importantly, the second quarter, the strength experienced during the first quarter has continued in that 1.6% range, and we are still on track with that 1.5% to 2% blend that we expect in the first half of this year. A few observations on data: I would say, number one, our coastal regions, which make up about 75% of our NOI, continue to experience the highest growth, about 3.1% blends in April, which is an acceleration from 2.8% during the first quarter. Specific to the Sunbelt, those markets experienced the greatest positive momentum from 4Q to January, but we have seen some of those markets retreat slightly over the past 30 days, going from about negative 1.5% in the first quarter to negative 2.5% in April. All in all, what I would say is we feel good about how we started the year. Our strategy and focus on total revenue and cash flow is playing out as expected. And we are really diving into the lifetime value of our resident, continuing to drive low turnover and higher renewal growth. Specific to the question that you had regarding what we are sending out and what renewals look like, I would tell you again, just to reiterate, our first quarter was almost double what we achieved in the fourth quarter at 5.2%, a very healthy number. Through July at this point, we are still sending out between 5% to 6.5% on renewals. And my expectation is we are going to sign within 100 bps of that. So all in all, we are going to continue to lean into our customer experience project, drive down turnover even further, as well as try to test the market on both new lease growth and renewal growth. Operator: Our next question is from Steve Sakwa with Evercore ISI. Please proceed with your question. Steve Sakwa: Yes, thanks. Good morning. Could you maybe just talk about the debt and preferred book and what maybe future payoffs look like? I think maybe some of these happened a little bit sooner. Just trying to think through the cadence of that and what could or may not happen over the course of 2026, 2027, 2028? Thanks. Dave Bragg: Hey, Steve. Thanks for the question. So on the DPE book, as you know, this is a business that we have been in more than a decade. It is one of several ways that we deploy capital and it was established to allow us to utilize our expertise to earn income and/or gain access to assets that we like. This quarter, we are pleased to report, including today, that there are two assets in Portland that we are excited about gaining access to. That is a market that has moved up on the leaderboard internally from a predictive analytics tool perspective. And with the loans coming due with one operator relationship in that market, we looked at these and we considered the following criteria: operational upside—and Mike and team are excited about the meat on the bone there—the rent growth outlook through our proprietary tool, and relatively low CapEx given the fact that they are new assets. This allows us to scale up in that market. As it relates to the book going forward, that is one of the ways that it is on the decline this year, which is what we expressed last quarter. We have the Portland opportunity, we have successful paybacks that we reported for the first quarter, and then lastly, the other consideration is that the market is frankly just more competitive. And we have remained disciplined in our underwriting. And when we think about the heat map and the uses of capital, we gravitate towards the stock given the fact that it is temporarily and unusually attractively valued. So, directionally, for you, if I was going to help you out with your modeling here, looking at the DPE balance in the high $300 million range at the end of the first quarter, I would point you towards $300 million or so at the end of the year. Operator: Our next question is from Jana Galan with Bank of America. Please proceed with your question. Jana Galan: Thank you, and congrats on the strong start to the year. Mike, I was wondering if you could share any trends you are seeing this spring between A versus B properties or urban versus suburban? And then maybe bigger picture, is this not the right way we should think about the portfolio given this micro-market focus and analytics that your team has developed? Mike Lacey: It is a great question. Definitely one way that we look at it. It is sometimes hard to explain just given the footprint we have. I think it is easier to talk about some of the regions and then dive into some of the markets and what we are experiencing there. So maybe to back up just a little bit, what we are seeing today—and it is not going to surprise you—is the West Coast continuing to do better than, say, the East Coast, followed by the Sunbelt. I would tell you all of them are on track, maybe a few markets doing a little bit better than we expected, as I mentioned in the prepared remarks—specifically San Francisco and New York, and Dallas for us. But as it relates to just kind of A/B, urban/suburban, it does vary by market. I would tell you for us, San Francisco is a good example where urban A is doing better because you have more supply that is impacting as you move down the peninsula. But all in all, that entire MSA is doing well. And then you have a place like Boston as an example, where we are seeing a little bit more of an impact downtown, urban A, and less of an impact at our suburban B assets. It is a little bit market-by-market specific on the A/B, urban/suburban piece of the equation. But again, we do have winners in each of our regions today, and we are off to a pretty good start. Operator: Our next question is from Adam Kramer with Morgan Stanley. Please proceed with your question. Adam Kramer: Thanks for the time, guys. I am just wondering here, recognizing the dispositions that were done so far this year, I think, assets. Just wondering—some of your peers refer to risk of shrinking the enterprise too much from dispositions. Wondering how you think about that, if that is the right framework, if it is more market specific, if there are other drivers of how you think about how many assets you can sell and in what period of time, presumably to generate proceeds to use for the buybacks that you have talked about. Dave Bragg: Adam, I will go ahead and start off with the answer here. First of all, our disposition effort is centered around the playbook that has been in place since September. This is a point in time where there is an unusually wide disconnect between public and private market valuations. I have had the opportunity to follow the space over many years and have seen this a few times before, and my experience is that they prove to be fleeting. And so we are excited about the opportunity to recognize that, sell assets, and then buy back stock in a manner that is accretive while also improving the quality of the portfolio. We can speak more about the dispositions that occurred in the quarter, but your question is more so around the go-forward. What I would tell you is that the playbook will remain the same as long as the stock is as attractively valued as it is. We have more assets on the market and we will remain disciplined sellers, and utilize proceeds where we can to continue to buy back the stock. Operator: Our next question is from Michael Goldsmith with UBS. Please proceed with your question. Analyst: Hi, thanks. This is Amy, I am with Michael. Could you quantify approximately how much impact the portfolio lease realignment strategy may have on same store revenue as we move forward? And I assume we would not see any impact on blends, but let me know if you would expect any impact there as well. Mike Lacey: Yes. I think for us, what you could see, where I would point to—and I mentioned it when I covered the April answer—the fact that we had blends of 1.6% with a diversified portfolio, which was the highest amongst the peer group, I think that points to the strength. And so when we came out of 4Q, just to back up a little bit and talk strategy, our intention was to drive occupancy in that 97% to 97.2% range with the intention of driving our rent higher. For us, I cannot speak specifically for everybody else, but every 1% of blends that we are able to achieve, that is about $7 million to the bottom line over the course of 12 months. And so we think that we have a good start on the peers in the first quarter. And our intention is to continue to find those opportunities. It is a property-by-property and sometimes unit-by-unit level basis to find those opportunities to drive our blends going forward. And so our expectations right now—we are on track, but more to come. And I think we will know a lot more when we get together at NAREIT. Operator: Our next question is from Julien Blouin with Goldman Sachs. Please proceed with your question. Julien Blouin: Thank you for taking my question. I am just wondering, is there any competitive disadvantage to you if consolidation among large peers occurs in some of your markets and, you know, just suddenly there being a player with greater scale? Does that give them a data advantage in terms of informing their decisions in those markets? Is that piece meaningful at all? And I guess separately, do you worry at all about a transaction potentially attracting, you know, regulatory or political scrutiny right now? Tom Toomey: You know, Julien, this is Toomey. I will take a couple of parts of that question and ask the group to weigh in as needed. With respect to the regulatory environment and potential transactions or M&A, I will not comment—I cannot speculate where the government is or where the government is going. And, frankly, if you can get that crystal ball, bud, we can do really well in life, but I do not have that one. With respect to the industry, I would say this: it is a very fragmented industry. There have been dominant players. I have been at it over 35 years, and there have been dominant players, and yet everyone finds their space and their way to create value. I tend to think that we have uncovered ours over the years, and it is not requiring size to grow or accrete, if you will. We have tried to look at it and say excellence is the important thing to all successful companies, and size is sometimes an advantage, sometimes not. Excellence, particularly in operations, in capital allocation, and innovation. And so I think we are focused on that path. Having large dominating companies in some other spaces has worked, but they generally ultimately relate to whether they control the customer. In the case of, if you look at Simon mall company, they have a very good stranglehold on malls across the globe and are able to influence the customer. Or Prologis, where they have been able to influence logistics across the globe. The apartment industry is awfully fragmented for that. And I do not see that as being an achievable element where any of us are going to be able to control the customer segmentation/traffic, etcetera. So I would always welcome input on how we can get better. We will keep focusing on that. But I think you have a sense of where our head is. Operator: Next question is from John Kim with BMO Capital Markets. Please proceed with your question. John Kim: I was going to ask that last question, but maybe I will tie that into something else. If you were a bigger company, would that attract a different shareholder base? And I wanted to tie it into the monthly dividend. From our perspective, it looks like a way to attract retail shareholders, maybe a bit of a gimmick. I am sure that is not the way that you look at it. So maybe if you could just comment on your decision to go the monthly dividend route. Tom Toomey: Yes, John, this is Toomey again. I will ask the team to weigh in. I am really excited about the monthly dividend. Why? Because this is a topic that came up on our radar almost two years ago when we were looking at diversifying our capital sources. And that includes diversifying our shareholder base that would end up being drawn to our stock. What it really kicked into was how much is tied up in high net worth families and family office business. And also as we started talking more and more with Wall Street and large capital allocators, they were coming together with products to bring to the market and a monthly dividend became a selling point. And so for us, we see that as kind of shareholder-of-the-future expansion opportunity. People are looking at what is the stream durability and record of your delivery of that cash flow, and monthly is winning out over quarterly, over annually. So that was an important element in the decision. And then as we got farther into the research, looking at the depth of it, what was striking to me was our track record of 53 years and nearly $9 billion in dividends paid out. So we have the record. We have the business model that furnishes that cash flow. I think everybody knows what the apartment industry is like across America and can relate to it. So it seems, heck, let us give it a try. And I am looking forward to the receptiveness of it. We think it will be very positive, and that is why we have done it. I think it is a net-net positive for us. Dave Bragg: I would just add—this is Dave. I want to add one angle here. The monthly dividend switch is part of a broader push on our behalf to appeal to retail shareholders. And what they will see from us over time is a multifaceted game plan around that with a lot of outreach, adjustments to our marketing, etcetera. And we are committed to sticking to that. So this is one maneuver that gets their attention, but you and especially those retail investors will see more from us over time. And we are optimistic. The apartment business is very relatable to that cohort. It is something that resonates with them in terms of the cash flow of the residents, through us and then out to shareholders. So we look forward to seeing this play out. John Kim: I mean, if you have a large multifamily company that is doubling in size, does that attract a different shareholder base? There are other large companies that may attract more general equity investors, and I am wondering if that is something that has entered your mindset at all. Tom Toomey: My guess is looking at it over time, certainly you get reindexed, and you get a larger aspect of that. I think that is a net positive. Do you get other investors? I think active money is still trying to beat the index, and so they are going to move their money around to where they think the greatest growth and opportunities are. It is hard to grow a battleship as much as it is a light cruiser. So I think it just plays out where there is enough capital out there. If you are doing a good job, you will find it, match it up, and you will grow your company accretively. And I think that is the critical element that we all have to continue to focus on—growing accretively is critical, not size. Operator: Our next question is from Rich Anderson with Cantor Fitzgerald. Please proceed with your question. Rich Anderson: Thanks. Good morning. By the way, the Anderson family office is thrilled with the monthly dividend. The question I have is on turnover. When I started covering the space, annual turnover was 65%–70%. You guys are at 29% as of the first quarter. Is there an efficient frontier to the point where you could just have too low of turnover and maybe people are just not moving, and that might help explain, not just for UDR, Inc., but generally, why you are having such a tough time digging out of the hole of negative new lease rate growth? I am curious if you think there is any logic behind this idea that maybe turnover has just gotten too low and you are not at the frontier from a rent growth perspective. Tom Toomey: Yes, Rich. And I am glad to hear the Rich Anderson family office is eager about UDR, Inc. Here are a couple things to think about. You are right—turnover used to be a high number, and you were looking at your business from the number of days occupied, who was paying rent, etcetera. I think with the new datasets that we are seeing, and when we start looking at our rent roll, what it turns out to be is high-quality residents over longer periods of time generate more cash flow than a high-turn, resetting-the-market approach. So if you are in the cash flow business, you actually want low turnover taking rent increases. And then you ask yourself, what is the impact on your long-term business? Well, you are going to have greater cash flow. In our business right now, 60,000 apartment homes. The truth is annually, we only need to find 20,000 residents that are new. And I know everyone is focused on new rates. The question really is what is the capture rate of your renewals and what is the durability of that cash flow? And so now we are starting to endeavor into how do we move the quality of our rent roll up because, ultimately, real estate is valued by virtue of what is the underlying quality cash flow and the lessee of that. And can we make it a better quality rental available? So I covered a lot of different points there. Maybe Mike can clean me up a little bit. Mike Lacey: Yes, a few points I would add. First and foremost, the way we think about it is 2012–2019 turnover averaged about 51%. And so we have reduced that by about 1,200 basis points. Since we started getting into the customer experience project back in 2023, we have been able to improve turnover by about 800 basis points, which turns out to be about 400 basis points better than the peer average. We have made a lot of strides. I can tell you we are still learning a ton every day. What is interesting—when we went into the year, our expectation around turnover was it was probably going to be roughly flat on a year-over-year basis. Turns out we are about 300 basis points better on a year-over-year basis. Where we have been leaning into as of late, and you can see it in our renewal growth, is where can we start pivoting and trying to drive that number as well. Happy to report that 5.2% in the first quarter is very strong. Overall, we have come a long way. We are still learning. We still think there is opportunity on this front. And to Tom’s point, there is a whole other iteration that is to come, and that is around how we think about pricing, how we think about marketing, and how we truly drive that cash flow even higher. Tom Toomey: Mike, thanks for helping me. Operator: Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question. Alexander Goldfarb: Hey, good morning out there. Tom, certainly appreciate the focus and emphasis on the dividend—it is a big part of total return. But if you think about going after the retail crowd or the high net worth crowd, a few things come to mind. One is it seems like a lot of these private REITs or other similar products have higher dividend yields; they go after maybe, I do not want to say lower quality, but, you know, more generic assets that have higher current income. The other is sales load commissions that private REITs pay. Clearly, you are not doing that. So how do you think about getting your dividend competitive—and also competing when you are not paying commission? How do you think about breaking into that high net worth and that whole distribution channel that the private REITs and those other structured products seem to enjoy for themselves? Dave Bragg: Alex, great topic, something that we have discussed internally extensively as we worked on this project, and Tom did say it is something that the team has been working on for some time and put a lot of thought into. Really, it is an opportunity for us and the broader REIT space to educate the marketplace on the virtues of REIT investing. And I thought that you covered it well, Alex. It is about the total return. The dividend yield is a part of that. Unfortunately, in some of these other products, sizable fees can eat into that. So it is an opportunity in front of us, and we already have a nice schedule of appearances and conversations set up that will put us well on our way towards executing on that. We know that there are other products out there that are marketed in certain ways, but we believe that the numbers speak for themselves, and we look forward to educating that cohort on it. Tom Toomey: Alex, this is Toomey. I would just add: you are right with respect to the fee and yield trade-off, but one aspect that REITs have is liquidity and transparency, which a lot of these other products lack. When we have talked with investors in those products, they are waiting on the appraisal, they do not know when their window can open or close. Here, you have a security that underlies it—every day you understand what it is worth. It has liquidity and size and scope, and you have transparency. Operator: Our next question is from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question. Austin Wurschmidt: Mike, wanted to revisit your commentary around the Sunbelt lease rate growth moderating in April and was hoping you could provide some additional details to what is driving that softening and if you think it is something temporary or you are seeing it persist into May and June. And was it also specific to any one or two markets or broad based? Thanks. Mike Lacey: Great question, Austin. What we are experiencing right now I think is more of a blip, if you will, because we do still expect that we could see more of an inflection in the Sunbelt this year at some point. That is built into how we looked at our guidance for the year. Right now, I would tell you it is a little bit more specific to, say, Florida than it is in Texas, as well as even Nashville saw a little bit of a downtick, if you will. I think some of it has to do with market rents just not moving up as much as we would have expected over the last, call it, 30 to 45 days. And with that, you do have to negotiate a little bit more on your renewals. And so we were pretty aggressive with our renewals as you could see with what we signed. I think we had to retreat a little bit in some of those Sunbelt markets. But my expectation is we are going to continue to work through the supply down there, and we could see market rents start to move back up throughout the summer, and that could help us continue to try to drive those markets as we go forward. Operator: Our next question is from Haendel St. Juste with Mizuho Securities. Please proceed with your question. Analyst: Hi. This is Mike on with Haendel at Mizuho. Our question is, how does UDR, Inc. assess the risk to their Boston portfolio from the Massachusetts proposed statewide rent control measure on the ballot this upcoming November? And can you just remind us, is UDR, Inc. spending additional advocacy costs within the guide and what cap rate/unlevered IRR would a Boston apartment trade at today? Christopher Van ens: Sure. I can take the initial ones. I do not think we are ready to handicap the risk yet. We are still very early in the process. As you probably know, we are actively engaged with local owners’ groups, including some of our large public peers, and larger trade group partners to oppose the measure in Boston right now. With regards to how that is proceeding, we will provide updates as appropriate moving forward. There is just not really a great update to provide right now. Fundraising is happening. We have contributed—I can let Dave talk to that or I am happy to talk to the contribution part as well—that is probably in the neighborhood right now of around half a million dollars that we have given to the initiative. Most likely, we will go higher over the next couple of quarters. I will stress though that this is nothing compared to what was spent in California on the ballot initiatives. Massachusetts is obviously a much smaller market. So we feel that from a cost perspective, from a funding perspective, it will be a relatively smaller fraction than what we saw in California. As far as pricing, I can touch on that. It is hard to generalize across the market, but what I would tell you is this uncertainty has had an impact. We have seen less transaction volume, that makes it harder to decipher exactly where cap rates are, but our experience is directionally this uncertainty at this point in time has had an adverse impact on price. Tom Toomey: This is Toomey. I might add: one thing interesting because we have talked and said, is it a buying opportunity given the market is frozen? I think you have to be careful about that, but I think with our team and our insight with respect to how this is progressing, I would not take it off the map. It screens well—some of the markets in our analytics on a long-term basis—and it might be a good arbitrage window. But we will keep looking at it. Operator: If you would like to ask a question, please press star 1 on your telephone keypad. Our next question is from Alex Kim with Zelman and Associates. Please proceed with your question. Alex Kim: Hey, guys. Thanks for taking my question. Wanted to focus a little bit on San Francisco, which you have highlighted as a standout market. Given some of the growing debate around AI CapEx sustainability, tech headcount plateauing, and some federal deregulatory risk to tech market dynamics, just curious if there is a kind of read-through that you see in terms of the recent macro noise in your leasing velocity or traffic? And what is your stress case look like for the market? Mike Lacey: Sure. I will start if anybody else wants to jump in. Right now, what we are seeing is continued strength. And I think when you talk about AI and the jobs and everything that could happen there, I think you have to think of a few other points. For us in San Francisco, I am looking at—and how I think about the market—is very low supply, not only today but also into the future. So we have that backdrop. We do see the return to office that is in effect right now. We are seeing more migration, people coming closer to the work. And so places like SoMa and Downtown are definitely seeing their fair share of traffic today. And that AI growth is more specific in that Downtown/SoMa area as well. We continue to see a lot of momentum, not only on the traffic side, but on our market rents, which leads to renewal growth as well. In addition, the city is vibrant. We are seeing bars and restaurants start to open back up. We are seeing more retail return to that city. And at the end of the day, we have low rent-to-income ratios. So there are a multitude of things that are playing as a positive in San Francisco. Our expectation is we are going to continue to see strength in that market for the foreseeable future. Operator: Our next question is from Mason Gale with Baird. Please proceed with your question. Mason Gale: Thanks for taking my question. Could you talk about how you are viewing potential development opportunities today? If you would look to start development on some of your land parcels in the near term? Dave Bragg: Hey, Mason. Thanks for the question. As we noted in the opening, we are really pleased with the progress on the asset that we do have under development. As it relates to the go-forward, when we look at our land bank, we have a couple of existing sites that do fit comfortably in our strike zone, and I will describe that. First, they are adjacent to existing operating assets, so they are essentially expansions in submarkets that we know well. Second, they are stick build or podium. And third, the returns on incremental cash deployed through our land would be above 6% if activated. So, there is an opportunity to activate these and deliver into a less competitive supply environment in 2027 and 2028. If you were to see movement from us on that front, that is what would describe it. Operator: Our next question is from John Pawlowski with Green Street. Please proceed with your question. John Pawlowski: Hey. Thanks for the time. I apologize if this has been asked. I joined the call late. Dave, could you share the range of cap rates on the four dispositions in the quarter as well as the, I guess, the effective cap rate on the Portland, Oregon asset you consolidated? Dave Bragg: Hey, John. Thank you for the question. As it relates to the assets that we sold—four assets—I want to tell you a little bit about them because it puts it in perspective. Average age, 38 years. Rents below the portfolio average, but that is not highly important. What is more important is that through our lens, the outlook for rent growth is inferior to the retained portfolio, and certainly the CapEx needs are above average. So when we talk about these criteria for acquisitions and dispositions, this group of assets checks those boxes. We saw pretty deep and competitive bidding pools for these assets. Pricing came in within a few percentage points of our expectations. Market cap rate in the mid-5% range. Then as we think about Portland and the opportunity that we are excited about there, I would characterize that yield today as around a 5%. A lot of work for Mike and team to do to get in and stabilize it and work his magic from an operational perspective will get us to a stabilized yield in the high-5% range. Operator: Our next question is from Brad Heffern with RBC. Please proceed with your question. Brad Heffern: Yes. Hey, everybody. Thanks. Another on Portland. You obviously mentioned it has moved up your ranking list and you are taking on a couple assets there. At the same time, it is kind of a smaller market. It does not have a ton of exposure for the public REITs. I think part of that is just it has been a relatively challenging regulatory environment at times. I am just wondering if you can talk about maybe the positive aspects that you see and how that balances out with the negative? Christopher Van ens: Sure, Brad. Maybe I will start and then I will throw it over to Lacey if he wants to say anything as well. At a high level, Portland does look right now like one of our better markets from a demand/supply perspective. I would tell you 2026 job forecasts for the market have doubled since the beginning of the year. Wage growth acceleration is actually the best within our market footprint right now. On the supply side, similar to what Mike talked about in San Francisco, deliveries are way down. 2026 deliveries are only supposed to be about 0.7% of stock—similar in 2027. Both of those are well below what we saw in 2024 and 2025. And importantly, most of those deliveries are concentrated away from these two assets. But as you alluded to, our analytics obviously dig much deeper than the high level. For these assets, our platform likes Portland as a market; it thinks it is on the upswing as we look across our broad set of variables. More importantly for the assets themselves, it generally likes the demographics, it likes the psychographics, it likes the asset-level characteristics, the micro-location, new supply outlooks, all that kind of stuff for both of those assets. And obviously, when you combine all those things, per our analytics that should translate into outsized rent and cash flow growth moving forward—beyond or instead of what Mike can also put on top of it, and I will let him talk about some of that. Mike Lacey: Thanks, Chris. How I think about the market as well as the opportunity we see at these sites: first of all, it is a relatively small market for us. The team has always performed well here. As an example, the occupancy today is above 97%, and we are seeing blends in that 2% to 3% range. We view this opportunity as providing more scale. It does effectively double the size of the market for us. And for these properties specifically, we think we can drive that controllable operating margin between, call it, 300 to 400 bps over the next 12 to 18 months, just through staffing efficiencies, vendor consolidation, and other income opportunities. So we are looking forward to getting our hands on them. Operator: Our last question comes from Omotayo Okusanya with Deutsche Bank. Please proceed with your question. Omotayo Okusanya: Hi. Yes. Good afternoon. I just wanted to go back to the regulatory front. You did discuss Boston, but just kind of curious in terms of some of the other headlines out there: Senator Warren holding a whole bunch of the residential REITs to divulge more information about their business operation; some of the stuff President Trump is trying to do to improve housing affordability; the news from Washington, DC the other day about, you know, MA being sued to provide more insight into their rent structures and junk fees. When you think collectively from a regulatory perspective, are there any real concerns that some of that could impact how the business is run going forward, or does it feel like a lot of noise, and it should be business as usual at the end of the day? Christopher Van ens: Yes. It is honestly too early to talk about how some of those bigger picture pushes at the federal level might affect operations. I can tell you once again, the things that we are focused on right now are really tenant-friendly initiatives or policy changes. We already spoke about Massachusetts. But for us in particular, we are also looking at Salinas, California; we are looking at New York City; we are looking at, more recently, DC proper. Obviously, if any of those measures go through, they would have a tangible direct impact potentially to our assets in those areas. Once again, we formed ownership groups, we have contributed funds along with our peer partners, and we are working with larger trade groups to defeat those measures. The positive for UDR, Inc. is that we have a very in-depth governmental affairs team that monitors the federal level, the state level, and the local level, and they keep all of our capital and operations teams apprised of any changes that should occur, whether positive or negative. That is what we go off of and we are able to handicap what we think is going to happen going forward. So that is what we are looking at right now. Tom Toomey: Taylor, this is Toomey. I would just add this. I am proud of the industry pulling itself together and educating politicians on what good housing policy looks like. I think we want a thriving America, a thriving housing marketplace, and there are ways to get there without just pandering and stopping development or stopping rent growth. Capital makes better homes. And capital is not going to arrive at the space if it feels threatened. I think politicians get that, and as we have educated them more and more, we see more of how do we work together to create thriving communities. It is not being ignored. It just takes a long time to bend the curve, if you will. Operator: This now concludes our question and answer session. I would like to turn the floor back over to Tom Toomey for closing comments. Tom Toomey: First, let me thank all of you for your time, interest, and support of UDR, Inc. I thought it was a very productive call today and always welcome your insight, follow-up questions, and the team is always available for that. We look forward to seeing you at many of the upcoming industry events over the next couple months. Take care. Operator: This does conclude today’s teleconference. Please disconnect your lines and have a wonderful day.
Operator: Welcome to Allstate's First Quarter Earnings Investor Call. [Operator Instructions] As a reminder, please be aware this call is being recorded. And now I'd like to introduce your host for today's call, Allister Gobin, Head of Investor Relations. Please go ahead, sir. Allister Gobin: Good morning, everyone. Welcome to Allstate's First Quarter 2026 Earnings Call. Yesterday, following close of the market, we issued our news release and investor supplement and posted related materials on our website in at allstateInvestors.com. Today, our management team will discuss how Allstate is creating shareholder value. Then we'll open up the line for your questions. As noted on the first slide of the presentation, our discussion will include non-GAAP measures for which reconciliations are provided in the news release and investor supplement. We will also make forward-looking statements about Allstate's operations. Actual results may differ materially from those statements, so please refer to our 2025 10-K and other public filings for more information on potential risks. Let's start with 3 of our recent advertisements and then Tom will begin. [Presentation] Thomas Wilson: [Audio Gap] Reinforces a simple message, check all state first. And the third, which debuted this week is our newest campaign, if it's important to you, it's important Allstate, which demonstrates our commitment our pure for customers and the breadth of our offering. These same themes apply to investors. You can avoid Mayhem by investing in Allstate, which has proven has a proven ability to generate consistent results. If you should call Allstate first, if you're investing in protection companies, we are affordable, particularly at this PE ratio. If it's important to shareholders, it's important to Allstate. We're going to touch on these same themes this morning. So let's review first quarter results starting on Slide 2. I'll say we had excellent operating results in the first quarter. As you know, our strategy has 2 components that are shown on the left. Increase personal property-liability market share and expand protection provided to customers. On the right, our performance highlights for the first quarter. An important part of today's conversation is that Allstate competes using a broad set of tools, not just lowering price. This enables us to maintain attractive margins while accelerating growth. We also broadened protection offerings for customers, investment income increased and shareholders higher dividends and accelerated share repurchases. The financial results are shown on Slide 3. Total revenues increased to $16.9 billion, up 3% for the first quarter of 2025. Investment income increased nearly 10% to $938 million. The property-liability recorded combined ratio was 82% and the underlying combined ratio is 80.3%, a 2.8 point improvement from the prior year. Total policies in force increased by 2.5% and property-liability policies in force increased by 2.3%. Net income was $2.4 billion, and adjusted net income was $2.8 billion or $10.65 per diluted share. Net income return on equity was 48.4% over the last 12 months. Slide 4 provides a construct to answer the question, how are you generate attractive returns by growing if that includes more affordable price. The answer is that while prices are extremely important, transformative growth has created a broad set of competitive levers to enable us to grow, as you can see on the left. More affordable prices are supported by lower expenses and effective claims processes. We also use sophisticated analytics, new products, expanded benefits and bundled offerings to better serve customers. Compelling marketing and broad distribution increase new business, which fuels growth. This flywheel results in market share increases. Some examples are shown on the right. Affordable prices and lower expenses are enhanced with sophisticated pricing plans and better customer experiences. New products and benefits create value for customers. The Allstate brand affordable, simple and connected products for both auto and home insurance are now available in 45 and 36 states, respectively. And Custom 360 auto and homeowners insurance products for independent agents are now available in 40 states. We also routinely expand or improved benefits. For example, we recently added free identity protection, so customers think beyond price, and we execute the strategy of broadening protection. Allstate agents bundle auto and homeowners insurance at high rates, making it easier for customers and lowering acquisition costs per policy. Marketing acquisition economics have improved this year. We distribute the Allstate agents, independent agents, company call centers and over the web, which provides the right level of service for customers at the best value. In the first quarter, all distribution channels had increase in the new business and the total was a record which increased growth. Mario will now cover how this translates into market share growth while earning attractive returns. Jesse will then review more specifics on the Property-Liability business and John is going to cover protection services investments in capital. Mario Rizzo: Thanks, Tom. Let's start with the market share growth on Slide 5. Starting on the left, Whole State increased auto insurance market share in 29 states in 2025 that comprise 57% of countrywide premiums. Looking down below in the 29 states where share increased policies in force increased by 4.3% over the prior year and outpaced vehicle registration growth in those states. That means we increased our share of insurable vehicles in those states. Which we view as a better indicator of sustainable share growth than the traditional premium-based market share metric. In the remainder of the country, policies in force decreased by 0.5% versus an increase in vehicle registration of 0.6%. The decline is heavily impacted by 2 large states where we have intentionally been reducing share because of profitability challenges. If you look at which companies this growth comes from by dividing the market into the top 5 market share leaders and the rest of the market, slightly more comes from the medium-sized and smaller carriers. The broad set of competitive tools that Tom referenced also drives growth in homeowners insurance. Homeowners insurance market share grew at 83% of the U.S. market. [Audio Gap] This was in 41 stage, which had policy in force growth of 4.1% in 2025 over the prior year. We have a broad competitive advantage over the companies we compete with in the homeowners insurance market as demonstrated by our ability to profitably gain share. Moving to Slide 6. Allstate's business model enables us to consistently generate strong returns. On the chart, the blue bars represent the auto insurance underlying combined ratio, which averaged 94 -- 95% and 94% over the last 5 and 10 years, consistent with our mid-90s target. There was obviously an increase in the combined ratio in 2022 post-pandemic, which required significant price increases as shown by the light blue line in the middle of this chart. Since then, we have returned to levels at or below our mid-90s target and with more modest price increases needed to generate and sustain attractive returns. In the first quarter of 2026, rate changes were implemented in 39 states, which included a mix of both rate increases and decreases. These changes had a net overall neutral implemented rate impact across the book. Improving affordability will increase policy in force growth and raised shareholder value as long as the combined ratio continues to perform at or better than target levels. Let me note that these are underlying combined ratios that were reported for these years. And as Jesse will cover in a few minutes, favorable subsequent reserve development shows that results for several of these years are actually better than what is shown on the chart. Moving to Slide 7. You can see a similar story in the homeowners insurance business, which also generates strong returns. Homeowners insurance over the last 5 and 10 years had a recorded combined ratio of 93.5 and 92, respectively. And has generated underwriting income of $3.9 billion and $7.9 billion in those same periods. In the first quarter, the combined ratio was 83.5 and at average premiums increased 5.7% compared to the prior year quarter, keeping pace with loss costs. As you saw this quarter, we also posted the disclosure related to the placement of our comprehensive nationwide reinsurance program, which enhances the risk and return profile in the homeowners business by reducing capital requirements associated with catastrophe loss tail risk and dampening earnings volatility. The homeowners insurance business remains a competitive advantage and growth opportunity for Allstate. Now let me turn it over to Jesse. Jesse Merten: All right. Thanks, Mario. Let's look at the property liability results in total on Slide 8. Auto insurance policy growth of 2.6% and homeowners insurance policy growth of 2.5% and drove an increase of 2.3% in total policies in force in written premiums. Earned premiums increased by 5.5%. The Property-Liability combined ratio was 82.0 as both auto and homeowners insurance profitability was better than our targeted levels. This result was due to strong underlying performance as well as lower catastrophes and favorable prior year reserve releases. Excluding the benefit of reserve changes and lower catastrophes, the auto insurance underlying combined ratio was 89.5, which is 1.7 points better than prior year. Property liability underwriting income was $2.7 billion in the first quarter. Now turning to Slide 9. As Mario referenced in his comments, auto insurance profitability improved faster than original estimates in 2023 and 2024. The top of the stack bar is the underlying combined ratio as originally reported. The green bars represent the impact of subsequent prior year reserve adjustments. The light bars represent the adjusted underlying combined ratio, including the subsequent changes in our estimates of loss costs. As you can see, prior year losses developed more favorably than originally estimated. Reserving is as an iterative process with strong governance and oversight. We use consistent practices, multiple analytical methods and include external reviews by independent actuaries to ensure reserve adequacy. As more claims settle, however, estimates each year are revised to reflect actual loss experience. In recent quarters, actual loss experience has outperformed initial expectations. This results in the release of reserves from prior years. The auto combined ratio in 2023 is now estimated at 95.4, and 2024 is estimated at 90.0. Auto insurance profitability improved faster than originally estimated. Slide 10 highlights how we expect to continually improve our strong performance and enhance competitive position. Transformative growth builds a comprehensive competitive model. This included new software and adapted legacy systems to build a connected technology ecosystem. The system enables the use of artificial intelligence to improve customer experience and lower costs. We're leveraging this technology platform in building Allstate's Large Language Intelligent Ecosystem, which we call ALLIE, to harness the power of a genic AI. With that, I'll turn it over to John. John Dugenske: Thanks, Jesse. Good morning, everyone. Moving to Slide 11, the Protection Services business grew to grow -- continue to grow profitably. This segment is comprised of 5 businesses shown on the left. Detection plans, dealer services, roadside, Arity and identity protection. The largest business in this segment is Allstate Protection Plans, which grew revenue 13.5% versus the prior year quarter. This business provides protection for mobile phones, consumer electronics, major appliances and furniture. Protection plans generated $41 million in adjusted net income for the first quarter, down slightly due to higher claims costs. Arity is a global intelligence business. The higher loss this quarter reflects restructuring charge related to a reduced employee count. In total, Protection Service businesses increased revenue 7.2% and from the first quarter of 2025 and generated $47 million in adjusted net income. Let's turn to Slide 12 to discuss the investment portfolio. Investment income of $938 million increased $84 million or 9.8% compared to the prior year quarter. As shown on the chart on the left, net investment income has grown as the portfolio grew. Since the first quarter of 2024, portfolio book value has increased 24% or approximately $17 billion. The increase reflects higher average investment balances from a 15% increase in earned premiums strong underwriting income and improved fixed income yields. The table on the right side highlights the strength and consistencies of returns across asset classes. Over the last 12 months, the portfolio generated a 4.2% return. Fixed income results over the last 5 years are top quartile. Returns in our performance-based portfolio have been below longer-term historic averages over the last 1 and 3 years at 7.6% and 5.9%, respectively, but remain above industry benchmarks. These results underscore the effectiveness of our active investment management approach. As a result, we increased the capital allocated to the investment portfolio in the first quarter, some of which is carried at the holding company. Let's move to Slide 13 to show that proactive capital management creates shareholder value. Allstate deploys capital in multiple ways, which are shown on the left axis, organic growth, enhancing existing businesses, growth acquisitions and cash provided to shareholders. Using capital for organic growth leverages Allstate's capabilities and market presence with well-understood and attractive risk and return opportunities. This is why we're focusing on increasing market share in the property liability business. In addition, increasing market share should raise valuation multiples. Over the last 3 years, $3 billion of economic capital was utilized to support premium growth. As we just discussed, Allstate also deploys capital to support the investment portfolio to generate attractive risk-adjusted returns. Capital is also used to strengthen existing businesses such as investments we made in our technology ecosystem or enhancing our independent agent business through the acquisition of National General. SquareTrade was a growth acquisition that leveraged the Allstate brand and capabilities. It also expanded protection offerings to execute the second part of our strategy and brought strong retail distribution partnerships. Since it was acquired, revenues have increased eightfold, and the business generated $175 million of adjusted net income over the last 12 months. Allstate also has a long track record of returning capital to shareholders. In the first quarter, $881 million is returned to shareholders, repurchases and dividends. We completed the former $1.5 billion share repurchase program and launched a new $4 billion share repurchase program, accelerating the pace of repurchases. $3.6 billion remains on the current share repurchase authorization, which represents approximately 40% of holding company assets as of March 31 and 7% of outstanding shares. It's an interesting observation, if you bought all of Allstate 10 years ago, you would have received 99% of the purchase price back in cash and would have a company that generated $12 billion in net income over the last 12 months. Wrapping up on Slide 14. In summary, Allstate's broad set of competitive levers delivered strong results in the first quarter. Now let's move to questions. Operator: Certainly. And our first question for today comes from the line of Mike Zaremski from BMO. Your question. Francis Matten: This is Jack on for Mike. Just first one on the pricing outlook. Given how strong reported loss ratios are across your portfolio. I'm wondering how you're thinking about the opportunity to lean in more aggressively on pricing this year? And does that chunks differ materially across auto, homeowners and bundled customers? Thomas Wilson: I would go back to the slide we talked about in terms of growing. We have a wide range of ways in which we grow price is certainly important, but it's not the only one. And I know there's a question for menu. So let me maybe let's spend a minute to -- because it's what you described, we do it obviously by product. We do it by state. We do it by coverage. It's highly complicated. If we think bundled customers, lower acreage costs we give them a discount if they bundle. So yes, we do all that. But let me go up. So price is obviously important, and it's a key driver of profitability. As a result, we've built a system of, call it, operational levers, organizational accountability and sophisticated analytics. And our goal, of course, is to earn attractive margins and grow. And there's always a plan on prices that looks forward 6 to 12 months. We're going to talk about what that plan is here because it's competitive, and it changes all the time. And -- but it's based on what operational levers we think we can pull. So Jesse will describe the system for you and give you a couple of examples of how it works. The conclusion, however, is that the system works. It works for auto and it works for homeowners, and you can see that on Slide 6 and 7. our auto combined ratio was 94 to 95 over the last 5 and 10 years. Homeowners insurance ratio of 92 to 93.5 over the last 5 and 10 years. So the system itself works while price is important in just 1 component. Jesse, why don't you talk about how it works here and then give a couple of examples. Jesse Merten: Got it. So we think about the system like a cube that has 3 elements. And Tom alluded to the 3 elements. The operational levers, if advanced analytics and then organizational roles and responsibilities. And it's a bit like a Rubik's cube where it gives us multiple ways to both identify and address profit and growth opportunities that we have. What I'll do quickly is go through each component, and I'll give a couple of examples of what's going on, a couple of state examples about how the system works. So if you start with the operational element of our cube, we kind of covered this on Slide 4, Tom went through it. You have new products, broad distribution marketing effectively, we employ these operational levers at the state individual market and product level. It's very granular. If I move to the advanced analytics element, we have a highly sophisticated rating plans that have billions of price points per state. We analyze data by submarket within each state and by product, by coverage by risk segment. And we link that between the signals that we're seeing in current claims trends to price at a very granular level. So we're bringing, again, this interconnected system together. These marketing analytics that are terrific, they enable us to price lead purchases in real time, determine effectiveness of programs by media channel and message. And then the claims team is using a massive amount of data to assess the effectiveness of controlling severity and executing the claims function. Centralized. We have a centralized reserving team, of course, and we've talked about that. That's separate from our actuarial pricing team that gives us another set of eyes on loss costs and loss cost trends. The point of all this is that we have a lot of people looking at profitability and growth from a number of different perspectives to the advanced analytic lens. The final element, as Tom mentioned, was organizational roles and accountability. We have a matrix organization structure that enables us to bring all of our expertise to bear to decide how to pull various levers in this system. That includes price changes in total or by territory or by coverage, or customer risk segment and includes adjusting underwriting guidelines. Another dimension to that would be marketing investment. We can look at the price number of sales leads to purchase by market. and then determine distribution priorities alongside those other decisions. So the system that's working together again like a Rubik's Cube to drive profitable growth. The team in this -- the overall team, as we look at it, includes state managers that are responsible for profitability by product line, territory and coverage. We have a chief actuary who have oversized analytics, pricing trends across the country and by state and has a research and development function. We have go-to-market teams that are out there each day, bringing all of their expertise and all of this expertise together to manage growth and profitability by local market. And then we have distribution leads for Allstate agents, independent agents in our direct operations who can assess and evaluate performance on a real-time basis. They can expand or shrink distribution and set priorities and compensation to make sure, again, that we're optimizing across the system. So the 3 elements work together in a continuous planning cycle is the way that I think of it. We create a forward-looking plan looks at expected rate changes for the next 6 to 12 months by state by line, by company, as Tom referenced. It factors in things like likely regulatory timing and what the response will be, and we build up a countrywide matrix then of underlying profitability and growth that we can evaluate the forward-looking trajectory. In line to execution of all of the operational levers with the goal of earning attractive returns and growing in 2027 and 2028. The sort of make what is -- what turning the dimensions of this Rubik's Cube look like come live, I thought I would talk about a couple of examples. So in states where we have share that we would say is below our national average, and our underlying combined ratio is better than target, they were running at 88 underlying combined ratio. State managers will identify an opportunity to lower rates with an eye towards staying within those targeted ranges in coming quarters and in coming years. It's a forward-looking view so that we change rates in a sustainable way. They then work within the system that I referenced to utilize the broad set of tools that we discussed in our prepared remarks, to drive profitable growth by market. So that's optimizing distribution and is working with the marketing team to make sure that where we have opportunity to grow, we're leaning into that. On the other hand, so the other state example would be a state where our underlying combined ratio is above target or on a trajectory to go above our target. And we began taking modest rate increases to get ahead of the trend. And if needed, we'll restrict new business through underwriting guidelines and other operational levers again that we have to make sure that we manage profitability in that state. In states where we don't have ASC. Now we do have ASC in 40 plus states at this point. We'll limit new business until that product is available because we want the most contemporary and most accurately priced product in market. So we'll make sure that ASC gets approved and then relook at growth on a forward-looking basis. So we get the best product in market and again, look across the system to make sure that we're appropriately adjusting for a state that is not meeting our targeted returns. To make a couple of examples come alive, I thought I would just end with the system at work. You saw in the supplement that we changed auto rates in 39 locations and that netted to effectively no change in rate. If you scale that back, there were 23 states where we lowered rates. There are 16 states of increased rates. And because of our rating sophistication and segmentation, 10 of those states, we did both. So we had an increase in a decrease. So this is more than just a high-level analysis, it shows the depth and the breadth of what we're doing to pull the operational levers and all the levers that in the Rubik's Cube to optimize and deliver profitable growth. Francis Matten: That's helpful perspective. And maybe just a follow-up on California, where they recently comatose reforms to the intervener process. I guess wondering is does also do that change along with other recent game changer longer term, especially on the homeowner side, where I think historically, you've been reluctant to grow market share? Thomas Wilson: We believe that California still has a significant number of changes to make for the homeowners market will be accurately priced with easing availability for our consumers. Operator: And our next question comes from the line of Josh Shanker from Bank of America. Joshua Shanker: So in the first quarter, you had about $840 million of net favorable prior year development in the auto line. Obviously, I would imagine the majority of that comes from last year, which tells me you made a lot more money in auto last year than the combined ratio indicates. But it also arguably suggests that year-over-year, the margins are deteriorating. I mean they will. They're incredible right now. They have to deteriorate at some point. I'm wondering if you can talk about the trajectory of what you think is happening right now to help us better understand that. Thomas Wilson: Josh, if you go to Slide 9. You can see how we spread that. So actually, most of the change as it relates to the combined ratio came in 2023 and 2024, very little in 2025. And that's in part because '25 hasn't completely developed. Like we make these changes. We obviously do an estimate we started settling claims as we settle claims, we figured out what we're having to pay people figure out how severe they are. And then we adjust our estimates. So we obviously overshot the mark in 2023 and 2024. We have not concluded that for 2025, where you take our reserves properly stated. I'd also point out, we really didn't overshoot the mark much in 2023. So it happened to be those really concentrated in those 2 years. Going forward, we feel good about profitability. We've been able to earn better than industry average combined ratios in auto insurance for a long time, and we expect to continue to do that. will it -- will we still be at 89. I think when you look at the math on it, to the extent we can drive growth and give up some margin that works to improve the shareholders' valuation multiples. That said, like we're okay earn what we have right now. Like we think we're competitive in the market, but we think we can grow faster. Joshua Shanker: Obviously, 2023 was a very strange year. But is there something in your process that says that you want to be more conservative on the most recent accident years that the confidence interval on your reserving is more conservative for the most recent year in that programmatically. If you're doing things correctly, you would have this type of reserve release action going forward in '27 as we look back to '25. Thomas Wilson: No. We apply the same statistical standards to every year. I would say one of the things we're hopeful about is with advanced computing power that we can increasingly get more specific on what's in the reserves. Of course, the reserves are like you have a bunch of losses in a year, then you have to -- you say, well, how much do we pay out? And then you're kind of doing it and the residual value basis. What we paid out determines what we have left for all the claims that we still have yet to settle. We think with advanced analytics, we may be able to get another angle just looking at all the individual cases, which is really complicated. You got 900-page medical files, you get like lots of stuff to turn and figure out what that claim will settle in. But -- so it's the same process, same standards, and I would say, always getting better as we go forward. Of course, what you never really know is what's going to happen with legal trends or anything else. Operator: Our next question comes from the line of Alex Scott from Barclays. Taylor Scott: First one, I wanted to ask you about just prioritization of the holdco cash, which has grown to a pretty significant amount at this point. how would you think about prioritizing that? Are there different verticals within services that you'd look to expand or other things beyond obviously the larger buyback that you've been doing? Thomas Wilson: That's an important question, Alex. Let me try to build up a little -- start a little bit above where John went and then talk about some specifics underneath that. John, feel free to jump in here. So, the first thing I can is you can get a great return on what you got. And we had a 44% adjusted net income return on capital. So all of our capital, there's no hiring stuff off, no separate closed books or anything like that. We've got a 44%. That's a good thing. And when you look at the S&P 500, it's probably half of that. I don't know what it is this quarter, but typically, it's in the low 20s. And so we feel good about that return. Particularly when you're buying it at this kind of PE. Then you say, okay, well, what else can we do and John went through the order organic growth, you're just leveraging our existing capabilities, great scale to it, just put more volume through the system. Obviously, that's something we're focused on. But you got to make money at. You don't want to end up losing money or give yourself a short-term sugar high of growth and a long-term hangover called low profitability. So we manage that, as Jesse talked about, very aggressive in the Property-Liability business. We also think there's plenty of ways we can expand and leverage our existing capabilities. Whether that John talked about expanding our property-liability businesses or our investment using our investment capabilities, which we put a little more money into earlier this year because we think we're good at it, and the results show we're good at it, and we thought we saw some opportunities in the marketplace. And from an enterprise risk and return perspective, we had room to do that. So we look at it in total, we manage capital. And then there's a variety of other ways we can do it. In general, we look at it and say, we have to be a better owner of a business. Like why would our ownership make this business better. And that's where you look to grow stuff when you look at -- when we bought SquareTrade, putting our brand on it and that kind of retail distribution. We really ran the table on that business. I feel really good about it. Those don't come along that often. But you're always looking for ways in which you can enhance your capabilities. John, anything you would add to that? John Dugenske: I think you covered most of it, Tom, maybe just a couple of things to point out that it really is a system decision. We're looking both outside of the firm in opportunities, but then also in the firm, what's the best trade-off of how that mix comes together. I would point out that sometimes it's harder to see some of the investments that we're making such in technology or even in the investment portfolio, those can be fairly consumptive in terms of capital. it might be more difficult for you to actually see that versus a transaction? And then I guess I'd end up on the fact that I know some of you picked up on it and it's in the queue, but we actually accelerated our share repurchase program throughout the quarter. And that wasn't just a onetime thing. We continue to accelerate it. So one way to look at repurchases is what the quantum is, but also the pace matters, too. Taylor Scott: Got it. All very helpful. Second question, I actually want to circle back on artificial intelligence, specifically and I know you guys have had a strategy over time to improve the expense ratio, so you could get even more competitive in the market and spur some growth. Could you talk about how I expand on that, what you're planning to do? And sort of how you see yourself positioned relative to some of your peers, one of which I think has begun to roll it out more aggressively and reduce their workforce more. Thomas Wilson: Let me start with a competitive position and then come back up to how we're doing our focus on both expenses, aka, generative and effectiveness called the agentic AI. I think it's really hard to tell where everybody is. Everybody is out doing something. We don't talk about everything we're doing because we don't want everybody know we're doing and we'll let them see in the marketplace. The -- but -- so I think it's hard. So what I can say is that the -- from our standpoint, our capabilities continue to grow exponentially. The opportunities we see continue to get bigger. And we're figuring out how to address and deal with some of the implementation and deployment issues because it's not simple. I can't tell you that it's all in market today. It's -- stuff is complicated. But if you can pull it off, it works really well. The easiest way thing to do is generative AI, which is, I think last time I called it the you might remember [ Ken ] sneakers. It's they run faster, jump higher strategy. It's good. It cuts out expenses, you can cut out call center people. Well, that's good. We're working on that. We do a bunch of it does millions of e-mails for us, people want to spend time doing it. It's all really good. I think the real benefit from this will come from a agentic AI, where agents are talking to agents and making decisions in subsecond real-time response rate that people then can't compete with you. We're building that. It's really complicated building an ecosystem. You got to get the right governance around it, you got to make sure you set up whatever metrics you've given, it will go get. So you have to make sure measurement science is really important. So we're working hard on that. We're excited about it. We think it offers potential to really build off of what we did in transform to growth. We don't have the issue that some companies do. I don't know what our competitors' issues over, but I know other companies that I'm not talking to, have some issues in accessing legacy technology. We don't have that for many of our systems. We do for some, but not many of them, which gives us an ability to accelerate the agentic or ALLIE work. Operator: And our next question comes from the line of Yaron Kinar from Mizuho. Yaron Kinar: My first question is on the homeowners book. Why was the expense ratio up year-over-year? And would you still expect improvement for the full year. Thomas Wilson: We reallocate expenses from time to time. There's slightly higher commissions related with bundling on that. So while it looks expensive, it's good lifetime value. So let me put it that way because we had the same question. I like it a like where this point go? And so it relates to how we're driving value. And we try to do it, so it's accurately flex what each product gets and not just spread those costs by commission. We love the homeowners business. We think it's great. We think it's an underappreciated growth asset, not just given the market share numbers that Mario talked about. But if we just think about severe weather, and you're looking for trends. People need more for their homes, the worse the weather it gets. And so -- and we're really good at that business. So we like that business. I think it has great potential. Yaron Kinar: And just to clarify here. So the reallocation of expenses, is that something that's going to flow through throughout the year? Or do you still expect to see year-over-year improvement. Thomas Wilson: We don't forecast expenses. But it takes sense we're spending the money to increase bundling. We like that, yes. And so it would be higher, but we're still learning a great return. So I wouldn't -- homeowners is a little less price sensitive than auto insurance would be the other point I would just add to you as you're thinking this one through. Yaron Kinar: All right. And then my second question, I realize it may still be relatively early, but so we've had the closure in the rate of use for 2 months now. Do you expect gasoline prices and supply chain disruptions related to the closure to impact frequency and/or severity in both auto and home. Thomas Wilson: We don't know would be the answer. When you look at -- I can give you some facts around it. About 1/3 of driving is discretionary. About 1/3 is for like going to work and about 1/3 is for like doing stuff, you got to do both the grocery store so if that. So you're basically talking about 1/3 of things people decide they want to go on a shorter vacation or whatever. That obviously takes some time to factor in. Gas prices are $5 or $6, people don't go as far. Maybe they share their card on writing to work. maybe they don't go to the grocery store as often. And so there's various things that higher gas prices do result in fewer miles driven, which then lowers frequency. But it's not a straight line. You can't just say Strait of Hormuz is here. Gas prices -- it's $110 a barrel for oil. Therefore, we're going to have a 0.5 point change in frequency. You just don't know. And there's a million different variables to that. What we do know is we pay attention to frequency. We keep track of free, we do our claims. We do clean counts impact our reserving and we get claim counts every day. So to the extent they're changing, we're already looking at it. But then you have to decide how long will it be there. And even when you have higher prices, you might get a temporary drift down, drop down and then it goes back up. And then we track 50 million cars every day, every 15 seconds. So we know who's driving when. Yaron Kinar: That's on the frequency side. And what about the severity side? Thomas Wilson: Severity, again, in general, higher petroleum prices roll through everything from plastic parts on cars to shingles. And so it has an upward impact on it. What happens to our cost. We don't see anything right now in severity, increasing severity of parts and some of that. And then it's a competitive market, so you just see what happens. So we're not concerned about the price of oil and its impact right now on our profitability. Operator: And our next question comes from the line of Paul Newsome from Piper Sandler. Jon Paul Newsome: Good morning. Thanks for the call. Maybe a revisit to the competitive environment a little bit and talking about some of the states that have been not as attractive. Any thoughts about those states turning or some of the other states that were in between turning to a more positive environment? Or is there any color you could get, I think, would be helpful and interesting. Thomas Wilson: Paul, just to read that question about the regulatory and operating environment, I think, rather than competitive is the way I'm hearing the question, but let me make sure I get it right before I answer. Jon Paul Newsome: Well, I guess it's either one, right? If it's regulatory, then that's the thing to focus on is it's competitive, and that's another thing. But I guess investors to hear more of the competitive piece than regulatory piece of... Thomas Wilson: Yes, I'll go to both of them. Let's start with regulatory. Obviously, there were 3 large states we called out last year that we struggled to find a way in which we could earn an adequate return for our shareholders, give customers a good price and grow. And so we didn't. And some of those are getting better. I'm really excited about what might happen in New York with Governor Hochul doing it will be a blow for freedom or insurance consumers to take the cost out of unnecessary, what I call, fender bender litigation, that could be a huge benefit because New Yorkers pay a lot for insurance because there's a lot of these benefits being served on. Certainly, when people get hurt, their car gets wrecked, their bodies get bent up and stuff they should be totally in favor of that. And that's what we do, that's what we'd like to do. Sometimes, the system gets a little out of whack. it needs to be course corrected. So we're thrilled about what they're planning to do or hoping to do in New York. And if that happens, that would open a giant growth market for us. We have a big share in New York, particularly in the 7 boroughs. We've been really strong there for a long time. We have a great agency force. It's got tight media markets. So our direct operations work really well there. We have good independent agent relationships. That would be a great place for us, and we hope that they can do that because it will be good for our customers and consumers in general. The -- if I just go to up to the competitive environment, it continues to be highly competitive in auto insurance, as Mario talked about. The top 5 continue to battle it out. You see some of the -- they're not small, but they're not in the top 5. Some of the independent agent carriers have had volumes go down, particularly a couple of big independent agent commercially focused companies have lost some share there. So we feel good about our competition in auto insurance against the top 5 where we're really starting to pick up some momentum against competition is in the homeowners business. Mario talked about at 81% of the country. And some of those top 5 either don't really sell their own product and have underwriting margin to work on in that space or haven't had as good a result as they would like. And so they're being less aggressive in that space. So we think there's great potential to grow in the homeowners business given that competitive set. Anything Mario or anybody would add to that?. Mario Rizzo: No, I think you nailed it, Tom. The only thing I'd say is we -- it's a highly competitive market, as Tom said, when you look at our results, and we continue to generate new business at historically high levels it's across distribution channels. We're leveraging all the capabilities Tom talked about early on, and we're competing effectively both in the auto and the homeowner space. And we like our chances to be able to continue to do that going forward. Jon Paul Newsome: That's great. As a second question, maybe turning to the Home business. I cover a lot of little companies that are talking about this is moving margin to more excess and surplus lines for homeowners trends. Any thoughts about that trend, if you think it's just kind of a temporary thing? Or it's a part of what matters for you imagine, given your very middle of the road new product for home insurance. It's not a huge piece, but just curious. Thomas Wilson: Not a huge piece of excess and surplus lines for us or for... Jon Paul Newsome: Yes. I would imagine it's pretty small for new folks. Thomas Wilson: Yes. We have an excess and surplus lines business it's north light. It's grown reasonably well. Just to help educate everybody else who's not -- it was indeed, Paul -- excess surplus lines are where there's not enough availability in the market and the customer goes out to like 2 or 3 companies can't get an offer. And so then somebody can offer them an excess and surplus lines company, which is, I'm going to call it lightly regulated as it relates to price as opposed to tightly regulated in homeowners. We have that -- we have a company that does that. We prefer to do it in the regular lines. And if we can't sell it in the regular lines, we don't necessarily use our excess and surplus lines if it -- because we don't -- it's because we don't like the market. Occasionally, that we might use excess and surplus lines for a really well-priced risk. But in general, if we don't like the state for homeowners, we probably don't like it for excess and surplus lines either. We do want it so that we can be available for customers they have it. And then on top of that, we're probably the biggest broker of homeowners insurance in the country because we serve our Allstate Asian customers well. When we can't offer a product in Florida or California, something like that, we have arrangements with other companies that we can sell their product for it. And that's -- that's kind of number with a B on it in terms of how much product we sell there right. Operator: And our next question comes from the line of Tracy Benguigui from Wolfe Research. Tracy Benguigui: You started earnings call by giving a demo on your ad campaign. How should we think about ad spend budget this year versus last? And any expense ratio impacts and PIF growth prospects as a result. Thomas Wilson: We're obviously -- it's a highly competitive market. We've dialed up advertising significantly over the last 4 years. We dialed that up with increased sophistication. So there's upper and lower funnel upper funnel being the stuff you saw lower funnel being very specific. We've find first shopping for insurance, and we like give her an ad at the moment on your addressable TV or on the web or something like that. So there's upper and lower funnel. We've increased our lower funnel advertising this year, which is better. It's easier to do metrics on it, like run ad on the super volume who's watching it do they buy anything from it was not as easy to find out whether that's economic as -- so we've shifted more to a lower funnel. But we spend relative to where our economics we have economic measures. But we don't spend all the way up like -- recently, we were looking at should we spend more. And sometimes, you just want to make sure the system works really hard. So you don't want to advertising to be the only thing you do to drive growth because you end up in a system period where we spend more, progressive spends more. So leads go up in costs, so we spend more. So they spend more. So you have to be careful you don't feed a beast, you don't want to feed. So we're highly precise, I guess, I would say, and disciplined about it. That then when we think we can advertise and if we think we can spend more money and grow more and get a great combined ratio, we will. And right now, we like our economics. So our economics are better this year than they were last year. Some of that is just getting better at executing Isn't that the market's really changed some has gotten better at close rates. Tracy Benguigui: Excellent. Shifting gears, can we talk about asset allocation. You doubled your equity holdings since September. So it's about 12% of your total portfolio. What is that relative to your equities asset allocation target? Thomas Wilson: I'll let John answer that. It is also part of what he does besides our Chief Financial Officer. We tried to make sure everybody don't release 2.5 jobs. And -- but I would just say we see probably wouldn't want to say to self that were really good investments. We manage it around. We're proactive. We think about it from an enterprise standpoint. You can see the numbers on the chart. And so we have good confidence that we can generate good returns on capital, and you see it flow through our P&L, particularly this quarter. John Dugenske: Yes. It's thanks for the question, Tracy. The way I think about it, if I take a step back and really go back to the presentation, think about how we think about capital allocation in general, we have a lot of different things we can do. We think about the overall enterprise context as we do it. And we also think about what's going on in the market environment at any part in time. You've seen us in our portfolio, change our allocation probably more than most of our peers, whether that's equity or whether that's fixed income, changing our exposure to rate via duration and the rest. Because we're active -- I don't know that I could point you to a specific asset allocation target. There's a range that's defined by past behaviors. It probably gives you a pretty good idea of what we're likely to operate within. When we do put more money to work, particularly in equities, we try and take a mid- to longer-range view on it. We are economic investors, we're not just trying to manage to a yield target at any point in time. We think by delivering economic value that does accrue to increase net investment over time. And it's a more cerebral way of going about it. But we're not necessarily trying to measure that quarter-by-quarter and we're taking a longer look. The amount that we put to work recently has that in mind. If you look back, say, 6 months ago, the environment was a little less certain. We had a number of things going on. We have a little bit more clarity and felt good about putting money to work. And we'll see how it turns out in the coming quarters and years. Tracy Benguigui: Okay. So it sounds like your approach is more dynamic than static. So could we foreseeably see that percentage growing if you like, that asset. John Dugenske: I would say that. It's dynamic, but it's well governed. And you could probably gauge most of the range of our future activities by the way that we've conducted ourselves in the past. Yes. So we're not likely to have an 80% equity allocation. Operator: And our next question comes from the line of Pablo Singzon from JPMorgan. Pablo Singzon: Just one for me. I wanted to shift to AI again, but this time as it relates to your distribution strategy and how you reach customers. I presume it helps direct distribution, but how do you think it affects your agents, whether captive or independent, there's an argument that it makes them productive, but do you think Issues away from them? Thomas Wilson: Sorry, what makes the agents more productive at? Pablo Singzon: Just the use of AI Yes, that's sort of like the targeting... Thomas Wilson: The 2 probably most talked about letters in these days. So AI can help them in a whole bunch of ways. First, it can help us have a better product. and better pricing and deliver better service for people. That's in general, just -- it will help us be a better company. Secondly, as it relates to their specific work, we think it will remove a lot of service work out of agents offices. So things they had to do before they won't have to do any more. So we're actively working to get that work out of their offices. Secondly, it will help them be smarter and on behalf of agents who provide more advice and do less individual work. Let's say we were going to do an insurance review view. An agent might have to go pull your record, see what you've got, see what your kids are with, both advanced computing, what you want to call it, machine-based learning, AI, whatever, we can help them do their work ahead of time, so they're really delivering the work, and it's like they have an analyst working for them to help them. The other thing that AI can do is really in the moment. And so we have in market today, something called customer engagement side kick that helps you really do a better job of engaging with customers. Because you might have a few doing 50 calls a day or something like that, it's always good to have somebody, "Hey, this is what I'm kind of hearing maybe you should go here. Here's the tonality we're talking about." So we think it will help them do a much better job for those people who want somebody in between them. The AI can also just sell directly. And we're live in the market doing that right now on a particular product. It's more of a learning, but it's doing it in 3 states. It's closing policies. And so we're just seeing what we learn from that. So it all -- you just have to be there to meet the customers. And so I think that will help those agents who have good relationship with people improve their relationships. It will help other agents build more relationships. And then those people who just don't feel like dealing with it and we would just soon deal with the computer, we'll be there for them too. Is that last question Okay. So thank you all for -- we obviously had a great quarter. We had strong earnings increased growth with transformative growth. We think it's showing up. We went through the market share gains. So we look forward to your engagement with Allstate, and we'll be working to create more shareholder value. Thank you. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.